Summary: Webinar on the Latest Legal Developments in the Construction Industry

On 5 February 2021, Donovan & Ho hosted a webinar on the latest legal developments in the construction industry.  The panellists were Donovan Cheah, Kelvin Ng (from Vin & Isaac Lee) and Serene Hiew (from Harold & Lam Partnership).

For those who missed the webinar, here are highlights of what was discussed:

 

Impact of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (“COVID-19 Act”) on the construction industry

Inability to perform contractual obligations

  • The operational period of the Act has been extended to 1 January 2021 to 31 March 2021.
  • Section 7 of the Act deals with the inability of parties to perform contractual obligations.
    • This section is limited to any contractual obligations affected by the measures prescribed or taken under the Prevention and Control of Infectious Diseases Act 1988 to curb the spread of COVID-19. If one party’s inability to perform is caused by those measures, the other party cannot exercise their rights under the contract.
    • Contractors involved in disputes that arise from the counterparty’s inability to perform (e.g. delays in payment) cannot exercise their rights to sue or commence legal proceedings in this period.  The exception to this provision is if the legal proceedings have already commenced between the period of 18 March 2020 to 23 October 2020.
  • Section 9 of the Act provides an alternative for parties to choose an out-of-court settlement through mediation.
  • Section 12 extends the limitation period specified in the Limitation Act 1953 that expires within the 18 March 2020 to 31 August 2020 timeframe, to 31 December 2020.
  • Due to ambiguity in drafting, there is fertile room for dispute in the interpretation of the COVID-19 Act. For example, there is little clarity as to what is the threshold of proving that an inability to perform is due to the measures prescribed, or what exactly are the rights that cannot be exercised during this period. The COVID-19 Act may leave some contractors in a grey area – eg: not getting paid but also not being able to exercise their contractual rights to suspend works or terminate the contract. 

Effect of the COVID-19 Act on the Housing Development Act 1966 

  • The COVID-19 Act also prevents late payment charges being imposed by a developer on a purchaser who fails to pay installments from 18 March 2020 to 31 August 2020.
  • Time periods for delivery of vacant possession and the defect liability period is also extended as the period of 18 March 2020 to 31 August 2020 is excluded from calculation.

 

Federal Court decision in PJD Regency v Tribunal Tuntutan Pembeli Rumah & Anor & Or [2021] MLJU 41 FC about liquidated damages for housing development matters

  • Housing Development (Control and Licensing) Regulations (HDR) 1989 provides that the time for delivery of vacant possession shall be 24 months from the date of Agreement.
  • In PJD Regency, the court held that the date starts from payment of the booking fee, even though it recognized that booking fees are prohibited under the Regulations.
  • Application of PJD Regency would be limited to housing development matters, since in other construction projects using standard form contracts, the date of commencement of liquidated damages would be more precise. For example, the PAM Conditions of Contract 2006 expressly states that liquidated damages run from the completion date, to date of practical completion.

 

Latest cases on CIPAA 2012 adjudication

Name of entities & appointment of adjudicator

  • KLIA Associates Sdn Bhd & Anor V Mudajaya Corporation Berhad And Another Summons [2020] MLJU 1433.
    • An unincorporated consortium/JV should not be named in adjudication proceedings. The correct parties for the proceedings should be the legal entities comprising the consortium.
    • Claimant need not nominate or propose an adjudicator first, and can immediately request for the Director of the AIAC to appoint an adjudicator.

Direct payment from principal (section 31 CIPAA 2012)

  • Chong Lek Engineering Works Sdn Bhd V PFCE Integrated Plant And Project Sdn Bhd And Another Case [2020] MLJU 2389
  • This case also laid out the conditions to invoke section 30 for direct payments from principal:
  1. Where the unsuccessful party failed to pay the adjudicated amount to the awarded party;
  2. Awarded party made written requests to the principal to pay the adjudicated amount;
  3. There is still sum of money due or payable from principal to unsuccessful party;
  4. The principal did not pay the adjudicated amount.
  • The successful party in the adjudication has the legal burden to prove all 4 conditions. The evidential burden then shifts to the principle to show that there is no money due or payable from principal to the unsuccessful party under condition 3.
  • There is a difference between “due” and “payable”. An amount may be payable without being due.  In this case, as the works done was only valued until 17.2.2020 and the completion date was approximately 5 months later, it is probable that the contractor continued to work after 17.2.2020 and there should be a sum of money either due or payable after 17.2.2020.

Prohibition of conditional payment (section 35 CIPAA 2012)

  • Lion Pacific Sdn Bhd v Pestech Technology Sdn Bhd And Another Case [2020] MLJU 2308
    • A clause requiring payment to be conditional upon certification by Ministry of Transport is a conditional payment clause and held to be void under section 35.
    • Therefore, the prohibition in section 35 is not limited to “pay when paid” clauses only. “Pay if certified” clauses will also be void under section 35.

Powers of the adjudicator (section 25 CIPAA 2012)

  • Otis Elevator Company (M) Sdn Bhd V Castmet Sdn Bhd And Another Case [2020] MLJU 2306
    • The adjudicator has the discretion to deal with the allegation of forgery of documents if it was an issue raised by the party. The rationale for this is to prevent a non-paying party from easily defeating the object and circumvent the application of CIPAA by raising a forgery allegation in adjudication.
    • The adjudicator’s decision to not exercise discretionary powers under section 25 does not breach natural justice.

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This article was written by Tiffany Chin, an Intern with Donovan & Ho. Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory.  Have a question? Please contact us.

 

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