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.

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[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 …

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[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’.

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[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?

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[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.

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[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]    

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[1] < http://www.davidyek.com/adr/architect-has-no-duty-of-care-to-the-contractor-the-malaysian-approach>

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!

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.

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[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>

Welcome to MCO 04 from 28.04.2020 to 12.05.2020. Having gone through the 3 phases 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’. While some is in ‘consolidation’, ‘downsizing’, ‘closing shops and claim frustration’ or ‘forge ahead’, it is no longer a question of ‘extension of time’, but who is going to pay for the ‘extra costs’ of ‘moving ahead’, while some contract provided the provision of ‘mitigation of delay’ vested upon the contractor to ‘forge ahead’, at whose costs? That is a question…

The PAM Form 2006 provided at least 4 routes to go about, or it could be more, but let’s look at this 4 possible ways to maneuver the delirium of post-MCO ‘new normal’…

Foremost, the force majeure exit plan. Everyone is chanting force majeure, from the President of PAM to our minister. What is this force majeure? Unlike other standard forms of contract, the PAM2006 has been very explicitly defined force majeure to include epidemic[1]. A question may arise, what is the different between an epidemic and a pandemic. Covid-19 was declared a pandemic. Does it automatically qualify as a force majeure? If the minister says so, where is the ‘gazette’? Sorry, forgot, the parliament too is in ‘lock down’. So, it remains a theoretical question at the moment. Having said that, based on an advisory from the President of PAM to the Architect to render and only to ‘recognize’ any EOT application under this force majeure while omitting the rest of the ‘other possibilities’ in the absent of a ‘national gazette’ automatically classifying the MCO as a force majeure, regardless of how the ‘contract is formed’, would any rational mind construe such as being ‘just’? Notwithstanding that the next, possible event to take place is to instruct the contractor to ‘mitigate delay’ by applying to MITI to resume work during MCO. The next logical question is, who is going to pay for the extra-costs and expenses incurred to fulfill MITI’s ‘strict conditions’, having to note that a force majeure is a ‘neutral event’ not due to anyone’s fault yet, the contractor may have to absorbed all costs and risk arising from its action of ‘mitigating delay’ to work during MCO, for all purpose that the contractor is still liable to indemnify against the employer for any breach[2].

Second, the ‘changes to the law’ exit plan. There are possibility to rely on a change in the ‘law governing the construction industry’ as an exit plan to forge ahead with a view to be compensated[3] for loss and or expenses arising from this ‘changes to the law’.[4] Reminded by the fact that MCO was invoked under two existing legislation namely the Prevention and Control of Infectious Diseases Act 1988 and the Police Act 1967, where is the ‘changes to the law’? The respective Local Authorities PBT is still relying on the power and jurisdiction under the Street Drainage and Building Act 1974 for administration of the MCO. Unless otherwise via an Act of Parliament such as those mirrored against our neighboring Singapore’s the COVID-19 Act 2020, such can be construed as ‘changes to the law’ exit plan with a view to be compensated for loss and or expenses besides EOT.

Third, the ‘Stop Work Order’ Architect’s Instruction AI exit plan. This is a ‘novel idea’ that some Architect friends actually say, “[…] you need a ‘spine’ or alternatively, a ‘steel ball’ to issue such an AI for such, you may not get another project from your Client, post-MCO” Acknowledging the fact that by virtue of this simple AI, it has placed upon the shoulder of the Architect that arising from this act, alone, he has caused the contractor to ‘stop work’[5], ‘discontinue work’ or ‘temporary halt work’ on site, for reasons only best known to the architects, thus the notion of the ‘satisfaction of the architect’. Under such circumstances, the PAM2006 form allows the contractor to be compensated[6] with loss and or expenses together with the relevant EOT, subject otherwise to any ‘mitigation of delay’ required by the contractor. At least such appear to be ‘fair’ to both parties and the most ‘noble act’ to have been performed by the Architect, without ‘fear and favor’, avoiding dispute in any manner foreseeable. Sorry, how many Architects actually do so?  

Finally, the ‘Government’s Stop Work Order’ exit plan. Having to ‘toe the line’ some Architects may be ‘smart enough’ to circumvent the ‘conundrum’ by issuing a rather ‘vague’ AI such as “You are herewith instructed to comply with the Government of Malaysia’s Order for MCO” In other words, the Architect has instructed the contractor to ‘follow government’s instruction’ not its ‘instruction to stop work’, brilliant! For obvious reasons, now the contractor has been placed in a ‘doubtful situation’ as can such AI be construed as a ‘stop work order’ enabling them to claim EOT and ultimately, loss and or expenses? It appears to be that the contractor is ‘statutory bound’ to comply with the government’s instruction and thus entirely and mandatory ‘self voluntarily’ that has nothing whatsoever to do with the ‘employer or its agent’. Another facet is to look at arising from the MCO, the contractor cannot carry out its work and not the force majeure arising from the pandemic as the MCO is the causa causans to the course of the ‘damages’ in the entire ‘matrix of causation’. However, it is interesting to note that the PAM2006 allows for loss and or expenses arising from a delay due to a ‘stop work order’ from the government, subject otherwise that such is due to the ‘omission by the employer or its agent’[7]. Having said that, the ‘burden of proof’ falls squarely upon the shoulder of the contractor and the ‘sufficient of proof’ is on balance that the Architect has ‘failed to discharge’ its duty, thus the omission. Voila! Under the ‘strict liability rule’ and having a ‘close proximity’ in terms of reasonable ‘duty of care’ for the Architect towards the contractor, it is easily for the contractor just to mount a claim that the architect ought to have issue an AI for ‘stop work’ but it didn’t thus the omission of a reasonable ‘duty of care’ that has violated their rights under the contract.       

When the dust settles, we are able to see more clearly and rationally the entire spectrum of the effects of the MCO towards the continuity of work in the ‘new normal’ society. The legal construct of the ‘standard forms’ may have been ‘blinded’ by so many possibilities that has not been taken into consideration when the parties sealed the contract. The best possible way is a call to the government, instead of reliance on the obscure version of force majeure that only the ‘Frenchman’ knows what it truly meant, to pass an Act of Parliament mirrored  the Singapore’s COVID-19 Act 2020 and ‘ctr-alt-del’ any ‘contractual omissions’ for a ‘level playing field’ for a ‘new normal’ future.
​
Having wrote these as a personal reflection or opinion, not as a ‘lawyer’ or a legal counsel, as disclaimer, never take this writing of mine, to be your ‘legal advice’. You should seek appropriate ‘legal advice’ for your own situation. I am not liable for the accuracy of facts and representation on this writing.        

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[1] Art7(ad)PAM2006
[2] Cl.18.PAM2006
[3] Cl.4.3PAM2006
[4] Cl.4.1.PAM2006
[5] Cl.21.4.PAM2006
[6] Cl.24.3(c)PAM2006, “Compliance to a written AI in regard to the postponement […] to be executed under Cl21.4”
[7] Cl.24.3(n)PAM2006, “[…] provided always the same is due to negligence or omission on part of the employer […]”

As we have moved into the extended weeks of the Movement Control Order MCO, sanctioned by the Government of Malaysia, reality checks revealed that some of the industries are at the brink of collapse, one for example the construction related consultancies, i.e. architecture, see the research by Ezumi[i], forewarning the potential massive loss of jobs and revenues. This is only the tip of the iceberg.

Some friends from the legal fraternity have been asking, during this ‘lockdown’ what is the role of architect issuing payment certificate, inspection and valuation? I am duty bound by the advisory[ii] from the PAM’s president to explain that the first thing for an architect to do is to issue an instruction for ‘shutting down’ (construed as ‘stop work order’?) owing to the fact that the construction industry does not fall within the category of ‘essential industries’[iii] during this challenging time and it is a ‘blanket order’ by the government to cease all unessential work during MCO. In the words of the advisory, it states, “During this restricted period when construction works are suspended, the Contractor shall need to take all necessary measures to maintain and secure the site premises and the in-progress building works on site and ensure the construction site including all temporary works and any authorized workers’ housing on site, complies to the above Order[iv] and to all applicable building authorities regulations and do not pose any risk to health and safety.”

Whether such is to be construed as ‘force majeure’[v] has been well prescribed in most of the webinars and articles found in both FB and Linkedin, but the architect shall wisely leave such determination[vi]  to the parties of the contract as aptly pointed out that a ‘force majeure’ event does not entitle the contractor to claim for L&E[vii] under some standard form of contract, i.e. the PAM 2006/2018 Form due to ‘neutral event’.

Care has to be taken by the architects, as liked anyone else, the contractor has to continue to bear the cost of up-keeping the site, securities, utilities and maintenance of its worker quarters and machineries. These were equitable costs as real as those fees and payments that the consultants failed to collect. The architect must at all time, not only acted impartial, but must also be seen to be impartial as a contract administrator, taking the guidance from Lord Hewart’s famous statement that ‘justice should not only be done, but be seen to be done’, as in R v Sussex Justices Ex p McCarthy [1924][viii], by default, deemed to also act as a quasi-arbitrator. Failing which, the aggrieved party has every rights to claim under any court of competent jurisdiction. That is why it is not only a ‘challenging time’ but a very ‘interesting time’  also for dispute resolutions.

When the architect and its fellow teammates had issues going to work and coming to site, what is there for site valuation, certification and inspection especially so when work comes to a stall? Via drone or Zoom, Whatsapp, Skype or Wechat, work still can continue? Again, the better question an architect must ask, would the architect continue to issue AI for construction detail issuance, knowing that the site office has been ‘lockdown’? For the contractor, such an AI would have been an omen of ‘welcome’ for some reasons over the other.

Saying such, the real ‘repercussion’ is yet to unfold, especially the idea of ‘frustration’ has been given various renditions by various parties as some may look at it as a ‘ctrl-alt-del’ button to reset everything during this unprecedented ‘golden opportunity’ while others may see opportunity for general damages beyond the hold of the contract, notwithstanding the fact that ‘force majeure’ may be in operative in a given contract. The most ‘look forward’ to be tested in court, were those agreements that has been mutilated beyond its ‘original standard form’ with L&E excluded entirely, to the ‘whim and fancy’ of the employer at the advice of the ‘contract consultants’. Indeed, a very ‘exciting time’, as well.

Having said that arising from the MCO, works on site has been halted, the meaning of ‘working days’[ix] in some contract provision or statutory provision has to be given a broader definition not just excluding weekends and gazetted holidays, especially with regard to the issuance of adjudication decision under the CIPAA 2012[x] regime, within the 45 working days mark from the time of the receipt of the reply or the response, when a reply is not served within a stipulated time frame.

Notwithstanding that AIAC has been discreet[xi] on this matter, it is of the general interest of the disputing parties in the construction industry to know this and appreciate if friends from the legal fraternity may shade some lights on this matter as well. The situation is very real as it is difficult for parties and adjudicator to compile and bundle documents or decisions let alone, serving them to the respective party 'on time', with all the ‘road blocks’ in placed. It is indeed a very ‘challenging and interesting’ time we are all living to witness, in ‘blessing’ while having to say, the future for some industry like ‘architecture’ is very ‘bleak’, the dispute resolution ‘arena’ on the other hand, would be of the opposite.

Having wrote these as a personal reflection or opinion, not as a ‘lawyer’ or a legal counsel, as disclaimer, never take this writing of mine, to be your ‘legal advice’. You should seek appropriate ‘legal advice’ for your own situation. I am not liable for the accuracy of facts and representation on this writing.
 
-----------------------------
[i]https://drive.google.com/file/d/1M-eizVAmjNmWhgx8L4Xf7YF_GTBnEE4v/view?ts=5e853341
[ii]http://pam.org.my/images/announcements/2020/PAM_Advisory_Note_Covid-19_MCO_18.3.2020.pdf
[iii] https://drive.google.com/file/d/19caBk9M4F5kbf-55UqYW-XfIvG6P_-ok/view
[iv] Cl23.8(w) PAM 2006
[v] Cl23.8(a) PAM 2006
[vi]http://pam.org.my/images/announcements/2020/COVID-19-Movement_Control_Order_-_PAM_Advisory_Note-03doc2.pdf
[vii] Cl24.3(n) PAM 2006
[viii] 1 KB 256 at 259
[ix] https://www.linkedin.com/pulse/how-calculate-working-day-pursuant-cipaa-2012-sr-jaspal-singh/?trackingId=4mskWYFrNUxHFeE9MUnR6g%3D%3D
[x] https://www.aiac.world/wp-content/adjudication/PDF.pdf
[xi] https://www.aiac.world/news/292/Extension-of-the-Movement-Control-Order-and-Its-Impact-on-the-AIAC

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.

[Updated]: In 2019 the Federal Court, as per the ‘Jack-In Pile’ appeal, had ruled that CIPAA could only apply prospectively, i.e. it applies only to construction contracts executed after 15th April 2014, based on the following reasoning that unless expressly stated otherwise, the absence of an express provision, which can only be enacted by Parliament, CIPAA cannot operate to a construction contract entered into before such date. As a result the AIAC will no longer register payment disputes arising from construction contracts executed before 15th April 2014. 

[Updated-02]: The FC puts an end to this long-haul debate, by holding that CIPAA to be applied ‘Prospectively’.[1] Prospectively means CIPAA applies only to construction contracts executed after 15th April 2014 and not before. The ratio is that if Parliament intended such to be applied retrospectively, it has to be expressly state so. The ruling in Jack-In Pile is taken even further, where even though the main contract was entered upon before 15 Apr 2014, but the sub-contract entered after this date is subject to the application of CIPAA.[2] The prospective application is brought even further, to apply if there were material changes to the contract past the effective date of 15 Apr 2014.[3] Such also include the application of ‘agreement to novate’.[4]

-----------------------------------------------
[1] Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2020] 1 CLJ 299 
[2] Lion Pacific Sdn Bhd v Pestech Technology Sdn Bhd And Another Case [2020] MLJU 2308
[3] Naim Engineering v WCP Engineering [2020] MLJU 2059
[4] Encorp Iskandar Development Sdn Bhd v. Konsortium Ipmines Merz Sdn Bhd [2020] 1 LNS 1129

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 [2015] 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 [2015], 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 [2015], 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 [2016], 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 [2016], 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.
 
[Updated]: Having held by the Federal Court, as per the ‘Jack-In Pile’ appeal in 2019, CIPAA could only apply prospectively thus a ‘conditional payment clause’ could effectively be enforceable for any construction contract came before 15th April 2014.  

[Updated-02]: It is settled law that conditional payment is not allowed in CIPAA, prospectively.[1] However, is this prohibition applied to all contract? In short, No, citing if Parliament wanted a prohibition to be generic, it would have amended the Contract Act 1950 and not CIPAA.[2] Yet, in another case, it was held, prohibition on conditional payment would also apply in court proceeding, not just CIPAA.[3] Similarly, prohibition in conditional payment is not limited to “pay when paid” clauses only but “Pay if certified” clauses will also be void.[4]

------------------------------------------
[1] Jack-in-Pile[n3]
[2] Bond M&E (KL) Sdn Bhd v Isyoda (M) Sdn Bhd (Brampton Holdings Sdn Bhd) [2017] MLJU 376
[3] Khairi Consult v GJ Runding [2021] MLJU 694
[4] Lion Pacific Sdn Bhd v Pestech Technology Sdn Bhd And Another Case [2020] MLJU 2308


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 [2015], 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 [2015], 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.

[Updated-02]: Besides that of ‘statutory body’, much clarity or sometimes, ‘confusion’ has been accorded for ‘storey’ now included ‘basement’.[1] Occupancy has been given the widest interpretation to include residential or commercial.[2]

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[1] Tan Sri Dato' Yap Suan Chee v CLT Contract Sdn Bhd [2021] MLJU 1964
[2] Liew Piang Voon v WLT Project Management Sdn Bhd [2020] 1 LNS 1105

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 [2018], 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.

[Updated-02]: Fraudulently obtained adjudication decision has been given the strictest and narrow interpretation.[1] This is applied to another case where evidence had been deliberately altered.[2] Enforcement application under s.28CIPAA and payment by principal under s.30CIPAA can be applied simultaneously.[3] Estoppel is not sufficient in and of itself, adjudicator must consider the merits of defence on the ground of estoppel, not entirely rely on estoppel to dismiss a defence.[4] Adjudicator, in going into his own definition of ‘loss and expense’ as a Construction Professional, had failed to consider the contractual pre-requisites for a claim in loss and expense, had essentially re-written the contract instead of interpreting the terms therein.[5]

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[1] Rosha Dynamic Sdn Bhd v Mohd Salehhodin bin Sabiyee & Ors and other cases [2021] MLJU 1222
[2] KPF Niaga Sdn Bhd v Vigour Builders Sdn Bhd and another case [2021] MLJU 229
[3] Dekinjaya Builder Sdn Bhd v Chong Lek Engineering Works Sdn Bhd and another case [2020] MLJU 2455
[4] Perbadanan Perwira Harta[n25]
[5] Perbadanan Perwira Harta[n25]

 
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 [2016] 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.

[UPDATED-02]: It is settled that the adjudicator’s jurisdiction under s.25,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.[1] View Esteem has allowed issues not pleaded in the Payment Response to be adjudicated.[2] Similarly, the same ought to be said that Payment Claim ought to be revisable and it does not bound by the amount set out in the Payment Claim.[3] Errors in progress claims can be corrected in Payment Claim, including additional supporting document after submission of Payment Claim.[4] Therefore, Adjudicator’s power under s.25CIPAA are discretionary.[5] That also include discretion on quantum of costs.[6] With finality on costs and fees, interest.[7]

-------------------------------------------
[1] Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd. [2015] 8 CLJ 728
[2] View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2017] 1 LNS 1378
[3] Integral[n13]
[4] Puncak Niaga Construction v Mersing Construction & Engineering [2021]
[5] Seal Properties v Wabina Constructions & Engineering; P&A Management v WSH Development; Itramas Technology v Savelite Engineering; Pembinaan Melima v ATM Development
[6] MRCB Sentral Properties v GSIB
[7] Aston Star v Zumo Engineering

 
13) DOCUMENT ONLY ADJUDICATION?

Question, can either party request for hearing?  In Permintex JSK Resources Sdn Bhd vs Follitile (M) Sdn Bhd [2018], 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.
 
[Updated-02]: Adjudicator has the right not to allow hearing.[1] However, this was overturned in another case, where Adjudicator must allow for hearing and cannot refuse hearing purely on the ground that time is limited.[2] Latest finding conclude that Adjudicator did not contravene natural justice after considering the written submission of the parties, concluded that hearing is not required.[3]

---------------------------------------------
[1] Permintex JSK Resources Sdn Bhd v Follitile (M) Sdn Bhd (and Another Originating Summons) [2018] 1 AMR 693
[2] Guangxi Dev & Cap Sdn Bhd v Sycal Bhd and another case [2017] MLJU 878
[3] Mei He Development Sdn Bhd v Eosh Industries Sdn Bhd [2021] MLJU 519

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 [2017], 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.

[Updated-02]: Parties are not allowed to raise new sets of defence, not contemplated in the adjudication, for setting aside application.[1] However, in another case, parties are allowed to adduce new evidence in setting aside application.[2]

---------------------------------------------
[1] Hiform (M) Sdn Bhd v Tsr Bina Sdn Bhd and another summons [2020] MLJU. 808; Punj Lloyd Sdn Bhd v Ramo Industries Sdn Bhd & Anor and another case [2019] 11 MLJ 574; Gazzriz Sdn Bhd v Hasrat Gemilang Sdn Bhd [2017] AMEJ 1630
[2] Bluedream City Development sdn bhd v Pembinaan Bina Bumi Sdn Bhd and another [2020] MLJU 2531

 
15) SHIPPING AND MINING CONTRACT

In MIR Valve Sdn Bhd v TH Heavy Engineering Berhad [2017], 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 [2017], 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 [2017], 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 [2019], 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.

[Updated]: The High Court held that CIPAA does not violate Article 8(1) Federal Constitution. It also rejected the challenge, that CIPAA is a ‘usurpation of the judicial power of the court’ in violation of Article 121 Federal Constitution, reason being CIPAA is a judicial function and not a replacement of the courts' judicial power. It further affirmed that the acting director had the power and duty to appoint the adjudicator, regardless if his position as the ‘director’ has yet to be finalized.

[Updated-02]: Whether the parties must first attempt to agree on an adjudicator before a request for nomination from the Director of AIAC? Short answer, No.[1] Similarly, court holds the validity of appointment by ‘acting’ Director of the AIAC, albeit impasse with its recognition from AALCO.[2]

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[1] KLIA Associates Sdn Bhd v Mudajaya Corporation Berhad [2020] 1 LNS 1253
[2] Prestij Mega Construction v Estate of Vinayak Pradhan BA-24C-13-02/2020 and BA-24C-25-03/2020


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 [2018], 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?  

1. Core jurisdiction – as to where CIPAA applies
2. Competence jurisdiction – validity of payment claim and adjudication appointment and such.
3. Contingent jurisdiction – adjudicator can decide on any matter of a consequential and ancillary nature such as EOT is necessary to determine Loss and Expense as in LD. See SKS Pavillion Sdn Bhd vs Tasoon Injection Pile Sdn Bhd [2019].

 
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 [2017], 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:

1. Whether the claim is one which inevitably arises from the carrying out of the work and
2. Whether the construction contract provides for the party to be paid the amount claimed in consideration for its performance of construction work. 

 
[UPDATED-02]: This matter is truly unsettled. Previously, Syarikat Bina Darul Aman allowed Loss and Expense claim (LnE) in CIPAA.[1] However, if the LnE is not a provision of the contract, it cannot be awarded by the Adjudicator.[2] This argument went further that HC held LnE is not a ‘payment’, thus not allowable in s.4,CIPAA.[3]

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[1] [2017] MLJU 2381 | [2017] MLJU 673 | [2017] 1 LNS 559
[2] Kuasatek (M) Sdn Bhd v HCM Engineering Sdn. Bhd and other appeals [2018] MLJU 1919
[3] Integral Acres Sdn Bhd v BCEG International (M) Sdn Bhd and other cases [2021] MLJU 1889


20) PRE-AWARD INTEREST

In Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd [2017], it was held that an adjudicator has the power to grant pre-award interest pursuant to section 25(o) of CIPAA.

[Updated]: In Naza Engineering & Construction v SSL Dev [2019], the High Court held that the adjudicator has exceeded his jurisdiction under s.27(1) read with s.5(1)CIPAA by awarding the 4th Pre-Award Interest Sum, of which it was not claimed in the Adjudication Claim. Also read Court’s Power to vary the Adjudication Decision.  
 
21) WINDING UP BEFORE REGISTERING ADJUDICATION DECISION

In Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] , 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].

[Updated]: In ASM Development v Econpile [2019], the High Court granted an injunction restraining ‘winding up’ and held that the adjudication decision, which formed the basis of the ‘statutory demand’, had been disputed in an arbitration proceeding with cross-claims exceeding the amount in the adjudication decision on grounds that:
 

1. Nature of an adjudication decision which is "temporarily finality";
2. Adjudication decision may be enforced in accordance with Order 45 Rules of Court 2012 ‘as if’ it is a judgment pursuant to s.28(1) CIPAA, it should not be converted and be enforced as a judgment of court.
3. An injunction restraining the presentation of a ‘winding-up petition’ maybe issued, provided that the AD is disputed for a greater amount than the adjudicated sum in arbitration for ‘finality’.

 
22) [UPADTED]: COURT’S POWER TO VARY THE ADJUDICATION DECISION

[Updated]: JEKS Engineering Sdn Bhd v PALI PTP Sdn Bhd [2021] 9 MLJ held in contrasts the decision of Naza Engineering & Construction v SSL Dev [2019] that the court now has the power to severe any part of the AD as these were compelling and sensible on the grounds of in excess of jurisdiction by the Adjudicator. Such is against the earlier judgement of the HC, that Justice Wong KK held, ‘the court has no power to set aside a part of the AD under s.15CIPAA relying on BM City v Merger Insight [2016]. If the Parliament intended the court to have power under s.15 to vary the AD, Parliament would have to expressly provided for such analogues s.28(2)’. So, that is ‘unsettled’ as at the moment.

What is taken to be settled are one, court could not set aside AD on grounds of mistake in facts and/or in law; the court will not re-evaluate the evidence; and any reasons, brief as they may be, is taken as the adjudicator’s justification [a topic for another day]

In Naza Engineering & Construction v SSL Dev [2019], the High Court contemplated whether it has the jurisdiction to vary the adjudication decision to only allow enforcement of the ‘enforceable portion’ of the decision or to set aside the adjudication decision entirely. Justice Wong KK in his judgement relied on:

1. Common law cases, have to be ‘read with caution’ as there is no legislation in those countries for the court to set aside an adjudication decision.
2. S.28(2)CIPAA the court may make an order in respect to the adjudication decision AD either ‘wholly or partly’ to enforce only the part of an AD. In this matter, the court can either enforce only a part or severs the AD. Court exercising S.28(2)CIPAA as in:
   1. YTK Engineering Services v Towrds Green [2017];
   2. PCP Construction v Leap Modulation [2017];
   3. Harmony Teamwork Construction v Vital Talen [2017]
3. The court has no power to set aside a part of the AD under s.15CIPAA relying on BM City v Merger Insight [2016]. If the Parliament intended the court to have power under s.15 to vary the AD, Parliament would have to expressly provided for such analogues s.28(2).
4. The learned judge ‘disagree’ that the court has the power to set aside the AD where the adjudicator has exceeded his jurisdiction as opined in ‘Construction Adjudication in Malaysia’ due to:
   1. Syarikat Bina Darul Aman’s case, no discussion whether the courts are empowered under s.15 to set aside a portion of the AD;
   2. In BM City, the court has not sever an AD pursuant to s.15.
5. The AD was set aside entirely.

23) [UPDATED-02] CONSTRUCTION CONTRACT – refers to ‘singular’ contract and not ‘contracts’.[1] Unsigned quotation qualifies as a contract in writing for purposes of CIPAA.[2]

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[1] Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd [2020] 1 MLJ 311
[2] Ong Teik Beng (t/a MJV Construction) v Wow Hotel Sdn Bhd [2022] 8 MLJ 10 

24) [UPDATED-02]: REJOINDER – Mirrored arbitration, CIPAA Adjudicator has no jurisdiction to allow for Rejoinder.[1]

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[1]  Ireka Engineering & Construction Sdn Bhd v. Tri Pacific Engineering Sdn Bhd and another [2020] MLJU 548

[UPDATED-02]: 

25) TIMELINE – ‘Working Day’ is generally construed as the ‘working day’ of where the site is located. However, the HC held that the ‘Working Day’ for the delivery of the Adjudicator’s Decision must be construed as the ‘working day’ of where the Adjudicator’s office is located.[1] This law is, however unsettled, pending appeal. As to the definition of “Date” in s.5(2)CIPAA must necessarily mean “a calendar date or a statement by which the due (calendar) date for payment is capable of being identified” and not simply, “immediate” for “instantly”, “promptly”, “forthwith”, “at once” or “straight away”.[2] On another matter, commencement of adjudication is upon appointment of adjudicator as compared to serving of the notice of adjudication.[3]

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[1] Encorp[n6]
[2] Perbadanan Perwira Harta Malaysia v Kuntum Melor Sdn Bhd and another case [2021] MLJU 1593
[3] Granstep Development Sdn Bhd v Tan Chong Heng & Ors [2020] MLJU 2364

26) BREACH OF CONTRACT – CIPAA is not the avenue for claims of damages from a breach of contract, notwithstanding one would be allowed to raise such claims as a cross-claim of defence or set-off against a Claimant’s claim.[1]

27) ANSWER RIGHT QUESTION, WRONGLY – Courts are not concerned with merits or correctness of the decision.[2] This include, erroneous assessment of documentary evidence.[3] Therefore, Adjudicators are not bound by the disputes referred to them in the exact way as pleaded by the parties, especially with regard to the remedies sought.[4]

28) NATURAL JUSTICE – The 1st rule of natural justice “overlaps with” but is “distinct from the Duty to be Impartial” envisaged by s.15(c)CIPAA, borne out in fact; and in the objective perception of a “fair-minded and informed observer”[5], i.e. there must be a “reasonable suspicion” or a “real possibility” that the adjudicator would be biased, either in fact or in perception; which also include ex-parte communication with the adjudicator.[6] 

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[1] Hiform (M) Sdn Bhd v Pembinaan Bukit Timah Sdn Bhd and another case [2020] MLJU 2452
[2] Maju Holdings v Spring Energy; Acoustic & Lighting System v Les Engineering
[3] Ong Teik Beng[n10]
[4] First Commerce v Titan Vista [2021] MLJU 376.
[5] Halliburton  v Chubb [2020] 3 WLR 1474
[6] Rosha Dynamic Sdn Bhd v Mohd Salehhodin bin Sabiyee & Ors and other cases [2021] MLJU 1222

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 [2018], 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 [2019], 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!   
 

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[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 [2014] 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 [2016], 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