Commentary on the Federal Court’s decisions in Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd (2019) and Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd (2019)

Introduction

The Federal Court in the recent case of Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2020] 1 CLJ 299   decided the question whether the Construction Industry Payment Adjudication Act 2012 (“CIPAA 2012”) operates prospectively or retrospectively. This case was heard by the Federal Court together with Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd [2020] 1 CLJ 193 concerning the same issue. The Federal Court in both cases held that CIPAA 2012, in its entirety, operates prospectively. The result of the Federal Court’s decision effectively means that the dispute resolution procedure by way of adjudication under the CIPAA 2012 is not available to construction contracts which were made before the coming into force of CIPAA 2012 on 15 April 2014.

Brief Facts

In the Jack-In Pile case, the appellant was a contractor appointed by the respondent as its sub-contractor for a building project. The contract between the appellant and respondent was made on 16 March 2011, before the coming into force of CIPAA 2012. It was a term under the said contract that all payments to the appellant shall only be made within 7 days from the date the respondent received their related progress payments from the employer of the project. In other words, it was a conditional payment arrangement. The appellant subsequently commenced adjudication under CIPAA 2012 against the respondent for payment of a progress claim. An adjudication decision was eventually delivered whereby the respondent was required to pay the appellant the adjudicated amount being the amount claimed by the appellant in the progress claim. The respondent applied to the High Court to set aside the adjudication decision but it was dismissed by the High Court. The High Court held, inter alia, that CIPAA 2012, including Section 35 which prohibits conditional payment provisions in a construction contract, applied retrospectively. On appeal, the Court of Appeal allowed the respondent’s appeal and held that Section 35 of CIPAA 2012 related to a substantive right of an individual which was nothing less than the right to freedom of contract where the parties are entitled to regulate their business affairs. As such, the Court of Appeal was driven to conclude that CIPAA 2012 was prospective in nature. Hence, the appellant appealed to the Federal Court.

In the Ireka Engineering case, the respondent was the subcontractor appointed by the appellant for three separate projects, namely the KL Sentral Project, the Sandakan Project and the Mont Kiara Project. These contracts were made on 14 March 2012, 6 July 2010 and 15 September 2009 respectively, before the coming into force of CIPAA 2012.  The respondent commenced separate adjudication proceedings under CIPAA 2012 against the appellant in respect of each of the contracts for payment for work done under the contracts. The gist of the appellant’s response was that it was entitled to set-off any money due to the respondent by reason of its cross-claims against the respondent including cross-claims arising from contracts other than the one on which the respondent’s payment claim was based. The adjudicator in each of the adjudication proceedings allowed the respondent’s claims. The appellant’s applications to set aside each of the adjudication decisions were dismissed by the High Court and its appeals against the High Court’s decisions were also dismissed by the Court of Appeal. Hence, the appellant appealed to the Federal Court.

Decisions of the Federal Court

The gist of the issue before the Federal Court in both cases was whether CIPAA 2012 operates prospectively or retrospectively.

The Federal Court held that CIPAA 2012 operates prospectively. The grounds in which the Federal Court reached this decision are, inter alia:

  1. It is a trite general principle that an Act of Parliament is not intended to have a retrospective operation unless a contrary intention is evinced in express and unmistakable terms;
  2. There is at common law a prima facie rule of construction that a statute should not be interpreted retrospectively so as to impair an existing right or obligation unless that result is unavoidable on the language used, or unless a contrary intention appears;
  3. Parliament has not evinced any intention that the CIPAA 2012 is to be applied retrospectively. Whilst part of the reason the CIPAA 2012 is enacted is to remedy an existing problem, Parliament is silent on whether such a remedy was to be applied retrospectively;
  4. In the case of Jack-in Pile, Section 35 of CIPAA 2012 would exclude and impair the respondent’s express rights under the agreement which is the right to pay the appellant only after the respondent has received its related progress payments from the employer;
  5. The CIPAA 2012 is not merely about a change of forum. The introduction of CIPAA gives party a third option or avenue for parties to take legal action, i.e. statutory adjudication (the first two options being litigation and arbitration). This new avenue of access to justice is in anyone’s view a substantive right. Adjudication decisions can be enforced in accordance with PART IV of the CIPAA 2012 which will inevitably have a profound impact on and adversely affect the right of parties and the construction industry. CIPAA 2012 is hence not merely procedural in nature.

Comment

Firstly, the Federal Court held that

… CIPAA in its entirety should have prospective application only. It cannot be the case that some parts of the CIPAA have retrospective application whereas the other parts are held to have prospective application”. (paragraph [70] of the Jack-In Pile decision)

This part of the Federal Court’s decision does not accord with the principles held in the Privy Council’s decision in Yew Bon Tew & Anor v Kenderaan Bas Mara [1983] 1 MLJ 1, a case which was also cited and relied by the Federal Court. The Privy Council in Yew Bon Tew held that the expressions “retrospective” and “procedural” can be misleading; A statute which is retrospective in relation to one aspect of a case may at the same time be prospective in relation to another aspect of the same case.

It was thus open to the Federal Court to hold that only Section 35 of CIPAA 2012 is prospective while Section 5 of CIPAA 2012 is retrospective. Section 5 of CIPAA concerns the rights of the parties to utilize the adjudication procedure in CIPAA 2012.

Secondly, while CIPAA 2012 undoubtedly introduced a substantive remedy for the parties to construction contracts to refer their disputes to statutory adjudication, more emphasis should have been given to the question whether such substantive remedy would unfairly or unjustly impair or take away the existing right of the parties. In Yew Bon Tew, the Privy Council held that “… the proper approach to the construction of the 1974 Act is not to decide what label to apply to it, procedural or otherwise but to see whether the statute, if applied retrospectively to a particular type of case, would impair existing rights and obligations”.

The existing rights of parties to a construction contract to litigate or arbitrate their dispute still subsist, notwithstanding the introduction of statutory adjudication in CIPAA 2012. The introduction of any substantive right involving an additional avenue for parties to take legal action by way of adjudication under CIPAA 2012 arguably does not impair or take away the party’s existing or vested rights to pursue their claims in arbitration or in court.

Thirdly, Section 41 of CIPAA 2012 provides that CIPAA 2012 will not affect proceedings which had been commenced in court or arbitration before the coming into operation of CIPAA 2012. The High Court in UDA Holdings Sdn Bhd v Bisraya Construction Sdn Bhd & Anor [2015] 11 MLJ 499 held that the effect of Section 41 of CIPAA 2012 would mean that proceedings commenced before 15 April 2014 are expressly excluded or preserved from the effect of CIPAA 2012. Conversely, this meant that Parliament intended CIPAA 2012 to apply retrospectively unless the proceedings are caught by Section 41 of CIPAA 2012. The Federal Court did not agree with the interpretation of Section 41 of CIPAA 2012 put forth by the High Court in UDA Holdings Sdn Bhd. However, it also did not reconcile its decision that CIPAA 2012 in its entirety operates prospectively with the provision in Section 41 of CIPAA 2012. Section 41 of CIPAA 2012 becomes redundant in light of the Federal Court decision that CIPAA 2012 operates prospectively in its entirety. This does not accord with the usual rules of construction of statute that a construction which would leave without effect any part of the language of a statute will normally be rejected.

Lastly, the Federal Court’s decision will inevitably result in a multitude of uncertainties. In cases involving construction contracts entered before the 15 April 2014, where the adjudication decisions have already been made awarding the claimants the adjudicated sum and:

  1. the adjudicated sum has been paid by the respondent without protest. Can the respondent now recover the sums paid under the adjudication decision which was made without jurisdiction?
  2. the respondent has been wound up by the Courts by reason of its failure to pay the adjudicated sum. Can the winding up of the respondent be reversed?
  3. the respondent’s application to set aside the adjudication decisions under Section 15 of CIPAA 2012 has been dismissed by the Courts. Can the respondent now bring a collateral but fresh proceeding to set aside the adjudicator’s and Court’s decision on the grounds that the adjudication decision and the Court’s decision made under Section 15 of CIPAA 2012 are a nullity (Badiaddin Bin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd [1998] 1 MLJ 393)?

These uncertainties will result in numerous cases being filed in the Courts in the aftermath of the Federal Court’s decisions in Jack-In Pile and Ireka Engineering.

_____________________________________________________________________________________

By Kenny Chan Yew Hoong (view profile)
Partner , Azman Davidson & Co (Adjudication, Arbitration, Construction Law, General Litigation)
+603 2164 0200 (ext no. 153)
kenny.chan@azmandavidson.com.my

Recent Posts