The Federal Court handed down a decision which saw divergence in the conclusions reached by the panel, and is one that will pave the way payment claims are drafted in adjudications under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”).
This article discusses the decisions in Anas Construction Sdn Bhd v JKP Sdn Bhd and another appeal [2024] MLJU 53 (for the judgment of the majority) and Anas Construction Sdn Bhd v JKP Sdn Bhd and another appeal [2024] MLJU 54 (for the judgment of the minority).
Brief background facts
- The Appellant, Anas Construction Sdn Bhd (“Anas”), was appointed by the Respondent, JKP Sdn Bhd (“JKP”) for the construction of a flat in Penang.
- Anas appointed independent professional consultants to report on cracked beams and provide a safety report, but JKP did not want to pay for their fees.
- Anas then commenced adjudication proceedings against JKP for the outstanding fees and won.
- The High Court then allowed Anas’ application to enforce the adjudication decision and dismissed JKP’s setting aside application.
- However, on appeal by JKP, the Court of Appeal found that the adjudicator had acted in excess of his jurisdiction when he decided on a specific clause in the construction contract, i.e. Clause 36.6, that was not referred to/cited by Anas in its payment claim and adjudication claim. The adjudicator was also found to have acted in breach of natural justice when he did not invite parties to submit on that Clause 36.6 before delivering his decision.
- Anas then appealed to the Federal Court where the main question was whether the adjudicator is allowed to refer to specific clauses not relied on by the claimant. The majority of the Federal Court’s panel decided that the adjudicator may not do so, with a dissenting judgment from YA Dato’ Mary Lim Thiam Suan FCJ.
Majority Decision of the Federal Court
- The majority found that Section 27(1) of CIPAA limits the jurisdiction of the adjudicator to matters referred by the parties in the payment claim and payment response.
- Given that Section 5 of CIPAA provides details that must be in the payment claim, including the provision of the contract to which the payment relates, the claimant must identify the cause of action and the specific provision of the contract that it is relying upon to support that cause of action.
- The majority panel was guided by an earlier Federal Court decision of View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 which held, among others, that “s 27(1) of the CIPAA refers to the subject matter of the claim under s 5 of the CIPAA, which is the ‘cause of action’ identified by the claimant by reference to the applicable clause of the construction contract”.
- Here, the adjudicator decided that the most applicable clause that supports Anas’ claim was Clause 36.6. Since Anas did not rely on that clause in its payment claim, the adjudicator was not clothed with the jurisdiction to rely on that clause to hand down his decision in favour of Anas.
- The parties were also not presented with the opportunity by the adjudicator to submit on that clause 36.6, before he handed down his decision. The adjudicator had also acted in breach of natural justice when he relied on clause 36.6.
The dissenting judgment
- YA Dato’ Mary Lim FCJ began by addressing that since there are no pleadings in adjudication proceedings, the rules of pleadings as envisaged under civil procedure are not applicable.
- Although Section 27(1) of CIPAA limits the adjudicator’s jurisdiction to the payment claim and payment response, it is erroneous to treat the payment claim and payment response as “pleadings” since what is being referred in the adjudication proceedings is the dispute arising from the payment claim and not the payment claim itself per se.
- Despite Section 5 of CIPAA setting out the requirements on the details that needs to be in the payment claim, it does not provide how much details should be in the payment claim.
- YA Dato’ Mary Lim FCJ concurred with Lee Swee Seng J’s (as his Lordship then was) view in the High Court decision in Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd & Another Case [2017] 1 LNS 177 where his Lordship held that the Courts should not take a strict and technical approach on the details of a payment claim particularly when prepared by the claimant itself and not served through solicitors.
- Her Ladyship found that the words “including the provision in the construction contract to which the payment relates” under Section 5(2)(b) of CIPAA is intended to be illustrative, so as to indicate what are the details that may go into the payment claim.
- The absence of any citation of the provision of the contract or even the wrong citation of the provision of the contract would not strip away the adjudicator’s jurisdiction.
- Despite the absence of any reference to Clause 36.6 in Anas’ payment claim, JKP was apprised of what the dispute is when they responded in detail to Anas’ claims.
- Further, the entire construction contract (including Clause 36) was adduced before the adjudicator. It would be unreasonable for the adjudicator not to look at clauses of the contract not stated in the payment claim.
- There were also letters attached to the payment claim where Anas invoked Clause 36.6 and therefore, Clause 36.6 had been “cited” in Anas’ payment claim. The adjudicator was within his jurisdiction to rely on Clause 36.6.
- The consequence of the View Esteem’s decision is to limit the jurisdiction of the adjudicator to the subject matter of the claim referred to in the payment claim and payment response. It has nothing to do with the reasonings or grounds behind the claim.
- In the present case, the subject matter of the claim is the outstanding fees of the professional consultants and the clauses in the contract are merely reasons or grounds supporting that claim. The adjudicator’s jurisdiction is therefore limited to deciding on the outstanding professional consultants’ fees, and not that it is limited to only decide on the clauses cited in the payment claim and payment response.
- Clause 36.6 was not the main reason that the adjudicator found in favour of Anas. Other driving factors pushed the adjudicator to decide that way; Clause 36.6 was just the most applicable clause supporting Anas’ claim and not the only clause that would enable Anas to win the adjudication proceeding.
- Therefore, there was no breach of natural justice, which is a high threshold to meet from the get go, especially when he has considered all of the documents and the defences raised by JKP.
Key Takeaways
Although YA Dato’ Mary Lim FCJ’s decision is in the minority, the reasoning behind her Ladyship’s decision should be given due consideration. Her Ladyship’s judgment emphasised on the purpose of the CIPAA adjudication proceedings which aims to swiftly resolve payment disputes in the construction industry. As legal practitioners may not necessarily be involved in these proceedings, it may be more appropriate to take a less technical approach in dealing with the details of the payment claim and payment response. What is more important that is that both parties are apprised of the other’s position.
However, the majority decision of the Federal Court is binding, and claimants are now place with a larger task in ensuring that their payment claims are comprehensive particularly when citing the contractual provisions being relied on. This would also mean that the role of legal practitioners will become even more crucial in going through the details of the payment claim, to mitigate the risk of unfavourable findings due to legal technicalities.
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This article was written by Sean Ferdinand Ng (Associate) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.
