By Foo Joon Liang
The Construction Industry Payment and Adjudication Act 2012 (CIPAA) came into force on 15 April 2014. Apart from introducing statutory adjudication, CIPAA contains provisions governing payment terms within the construction industry.
Section 35, for instance, outlaws conditional payment arrangements. One commonly occurring arrangement is the back-to-back payment clause, under which a contractor agrees to pay a subcontractor only upon receipt of payment from the employer.
Section 36 introduces default terms for payment where the contract between parties is silent on certain aspects of payment.
UDA Holdings
Early on, the question arose whether CIPAA applies to contracts entered into prior to 15 April 2014, or whether its application is pegged to when the payment dispute arises.
This issue was considered in UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor [2015] 5 CLJ 527. The High Court, after hearing arguments from various parties, including the Kuala Lumpur Regional Centre for Arbitration (now the Asian International Arbitration Centre) as amicus curiae, concluded that CIPAA is retrospective. It applies even to contracts entered into before its commencement.
“It is therefore the conclusion of this Court that it is the clear intention of Parliament that CIPAA applies to all construction contracts regardless of when those construction contracts were made; and that would extend to the payment disputes that arise under those construction contracts.”
The Court of Appeal upheld the High Court’s decision.
Sections 35 & 36 CIPAA
Section 35 prohibits conditional payment arrangements. For example, a “pay when paid” obligation, often referred to as a back-to-back payment term, is prohibited.
Section 36 introduces default terms where the contract is silent, such as imposing monthly progress payments where the contract does not specify a timeline.
Sections 35 and 36 are substantive, while the provisions regulating statutory adjudication are procedural. CIPAA is legislation on both “Payment” and “Adjudication” in the construction industry, not limited to adjudication.
Bauer
In Bauer, the Court of Appeal held that Section 35 cannot be applied retrospectively. Substantive laws cannot be applied retrospectively to remove a person’s rights unless Parliament expressly provides for this.
I respectfully submit that Bauer applies only to Section 35.
After Bauer
Post-Bauer, High Courts have diverged in approach. In Iskandar Regional Development Authority v SJIC Bina Sdn Bhd [2018] MLRHU 1, the Johor Bahru High Court held that Bauer is limited to Section 35 and does not affect the general application of CIPAA, which remains governed by UDA Holdings.
At the time of writing, leave has been granted by the Federal Court for an appeal against the Court of Appeal’s decision in Bauer, which is yet to be heard.
Authored by:
Foo Joon Liang
Partner, Gan Partnership
E: joonliang@ganlaw.my
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at 27 September 2018.
