The Construction Industry Payment and Adjudication Act 2012 (the “CIPAA”) is a legislation intended to facilitate regular and timely payment in the construction industry. Among other things, CIPAA introduced the statutory adjudication mechanism to resolve payment disputes under construction contracts.
Section 3 of CIPAA provides that CIPAA does not apply to “a construction contract entered into by a natural person for any construction work in respect of any building which is less than four storeys high, and which is wholly intended for his occupation”.
The meaning of “occupation” in this context is important, since it will determine whether a payment dispute under a construction contract can be resolved through adjudication.
The High Court in Liew Piang Voon v WLT Project Management Sdn Bhd [2020] MLJU 1431 recently interpreted the phrase “wholly intended for his occupation under section 3 of CIPAA.
Brief Facts
- Liew Piang Voon (“Liew”) appointed WLT Project Management Sdn Bhd (“WLT”) to carry out renovation works on a double storey house, to convert it for use by his daughter to run a kindergarten.
- Liew was not happy with WLT’s quality of work and progress. As such, he refused to pay WLT for the renovation works.
- WLT stopped the renovation works and demanded payment from Liew, threatening adjudication proceedings will be commenced otherwise.
- Liew responded to say that CIPAA does not apply to the renovation works, since the building was less than 4 storeys high and wholly intended for his occupation.
- Liew applied to the High Court to declare whether this dispute can be adjudicated under CIPAA.
Court’s Findings
At the High Court, WLT argued that CIPAA applies to these renovation works since Liew did not intend to use the house for residential occupation, but for commercial reasons (ie: to run a kindergarten). WLT referred to the Guide to the CIPAA published by the Asian International Arbitration Centre (“AIAC”) that states:
“CIPAA does not apply to an individual owner i.e. resident who erects a building not more than 4 storey high which is wholly intended for his own occupation.”
However, Liew took the position that the word “occupation” must be broadly interpreted, since there was no express limitation to residential occupation. As such, CIPAA does not apply if the building is less than 4 storeys high and if it is wholly intended for that party’s occupation, whether residential or commercial.
The High Court held:
- The word “occupation” in section 3 of CIPAA should be literally interpreted based on its natural and ordinary meaning. There are no express restrictive words that it must be for residential purposes only. As such, the word “occupation” should be given its widest significance.
- Therefore, section 3 of CIPAA will apply even if the premises is occupied for “commercial purposes”.
- However, section 3 of CIPAA requires the premises to be occupied for own use, based on the natural and ordinary meaning. In this case, because the premises were to be used by Liew’s daughter to run a kindergarten, and not Liew himself, section 3 of CIPAA does not apply in this case.
- CIPAA therefore applies to the renovation works, and the payment dispute between Liew and WLT can be adjudicated under CIPAA.
Key Takeaways
The High Court held section 3 of CIPAA must be fulfilled in its entirety in order to apply, and there cannot be “partial fulfilment”. As such, in order to exclude a construction contract from the application of CIPAA, all these limbs must be fulfilled:
- There must be a construction contract;
- The construction contract must be entered into by a natural person;
- It must relate to construction work in respect of a building which is less than four storeys high;
- The building must be wholly intended for occupation by the person who entered into the contract
- Occupation in this context can be residential or commercial occupation.
For example, a contract entered into by an individual to construct or renovate a 2-storey shophouse to be fully used by him for his business, will not be covered by CIPAA. Even though the value of those works may be substantial, a contractor will not be able to use the CIPAA adjudication process to resolve its payment disputes for that contract.
Contractors who are seeking to use the adjudication mechanism to resolve payment disputes should therefore first examine whether all the limbs under section 3 of CIPAA apply to the construction contract. If yes, then they may not avail themselves to the adjudication process.
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Zi-Han Lim is an associate in the dispute resolution practice group at Donovan & Ho. He is experienced in dispute resolution, focusing on employment and industrial relations, administrative law and commercial litigation.
Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, and real estate/conveyancing. Have a query? Contact us.
