By Foo Joon Liang
Almost four years into the implementation of the Construction Industry Payment and Adjudication Act 2012, commonly referred to as CIPAA, the Federal Court delivered its decision in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2017] 1 LNS 1378, declaring the law on three parts of the Act. Two of these parts—concerning the jurisdiction of the adjudicator and the stay of an Adjudication Decision—reversed a body of jurisprudence developed over those four years, as well as the general understanding and practice of the industry. This article outlines the impact of View Esteem.
The law before View Esteem
Before View Esteem (unless stated otherwise, this refers to the Federal Court’s decision), the legal position on the adjudicator’s jurisdiction was clearly and unambiguously provided for in CIPAA itself. Three sections of the Act, whether read literally or purposively, indicate that the adjudicator’s jurisdiction is limited to matters raised in the Payment Claim and Payment Response.
Sections 27(1) and (2) provide:
“(1) Subject to subsection (2), the adjudicator’s jurisdiction in relation to any dispute is limited to the matter referred to adjudication by the parties pursuant to sections 5 and 6.
(2) The parties to adjudication may at any time, by agreement in writing, extend the jurisdiction of the adjudicator to decide on any other matter not referred to the adjudicator pursuant to sections 5 and 6.”
Section 5 sets out the requirements of a Payment Claim, while Section 6 deals with the Payment Response. Of relevance, Section 6(2) expressly provides that any reasons for a dispute by the non-paying party must be set out in a Payment Response. Section 6(2) is the only sub-section addressing a situation where a Payment Response is issued.
It is clear that the only avenue to expand that jurisdiction is by agreement of the parties under Section 27(2). Thus, a claim not made in a Payment Claim is outside the adjudicator’s jurisdiction and cannot be determined in that adjudication. Likewise, defences or reasons to dispute a claim that are not set out in a Payment Response cannot be considered by the adjudicator. This approach provides certainty.
This is especially important given the intent of CIPAA. A speedy resolution of a payment dispute could be derailed if a non-paying party (i.e., the respondent) is permitted to ambush the claimant with new defences or voluminous documents at the stage of the Adjudication Response. CIPAA only allows the claimant five working days to respond to an Adjudication Response, beyond which there is no right to further submissions, whether in terms of evidence or legal argument.
Regarding a stay under Section 16, the legal position required exceptional circumstances to be shown. This is more stringent than an application to stay a court judgment. The adjudication is intended as an interim resolution, with the possibility of reopening the payment dispute in subsequent arbitration or court action safeguarded by CIPAA. A respondent could withhold payment only if there was objective evidence of a real risk that the claimant would be unable to repay the sums once the arbitration or court action concluded. Section 16(1) provides:
“(1) A party may apply to the High Court for a stay of an adjudication decision in the following circumstances:
(a) an application to set aside the adjudication decision under section 15 has been made; or
(b) the subject matter of the adjudication decision is pending final determination by arbitration or the court.”
If there is no challenge or pending arbitration/court action, there is no reason to withhold payment of the adjudicated sum. A stay granted in less stringent circumstances would defeat the purpose of CIPAA.
These principles align with statutory adjudication approaches in countries such as the United Kingdom, Singapore, Australia, and New Zealand, where legislation similarly limits what an adjudicator can consider and aims to expedite payment disputes in the construction industry. Before View Esteem, Malaysian courts also referred to decisions from these jurisdictions, such as the Singapore Court of Appeal’s decision in WY Steel Construction Pte. Ltd. v Osko Pte. Ltd. [2013] 3 SLR 380.
View Esteem – The salient facts
View Esteem was the developer of a block of condominiums in Kuala Lumpur, and Bina Puri was the appointed contractor. Payment disputes arose from Interim Certificate No. 23, prior to CIPAA’s enforcement. Bina Puri initiated court proceedings on Interim Certificates Nos. 23–26R, obtaining summary judgment on Nos. 23–25 and the first moiety of retention sums. The remaining claim on Certificate No. 26R was stayed under Section 10 of the Arbitration Act 2005 for arbitration.
After the conclusion of those proceedings, Progress Claim No. 28 was submitted without architect certification. By then, CIPAA was in force. Bina Puri issued a Payment Claim on Progress Claim No. 28, and a Payment Response was submitted raising certain reasons to dispute the claim under Section 6(2).
During adjudication, View Esteem sought to introduce three new defences not included in the Payment Response. The adjudicator refused to consider these defences under Section 27(1), and Bina Puri’s claim of approximately RM17 million, inclusive of interest, was allowed.
View Esteem applied to set aside the Adjudication Decision and sought a stay pending arbitration. The High Court rejected both applications, observing that all reasons to dispute the claim should have been included in the Payment Response. The Court of Appeal upheld this decision. Leave was granted to appeal to the Federal Court—the first CIPAA case to reach it.
The decision of the Federal Court
Jurisdiction
The Federal Court held that Section 27(1) does not concern the grounds of the claim or the reasons for opposing it. Any matter concerning the “cause of action” in a Payment Claim falls within the adjudicator’s jurisdiction. The Court noted that, unlike other jurisdictions with prohibitory clauses, there is no impediment in Malaysia for an adjudicator to consider all grounds of claim or defence in the Adjudication Claim and Response.
The Federal Court further relied on Section 6(4) of CIPAA and academic commentary, holding that respondents may raise defences in the Adjudication Response even if not included in the Payment Response. Consequently, the adjudicator wrongly restricted his jurisdiction by refusing the three defences. The Adjudication Decision was set aside.
This decision reduces the importance of the Payment Response and allows respondents to strategically withhold core defences until the Adjudication Response, potentially prejudicing claimants. For as long as the matters raised relate to the “cause of action,” respondents may include them in the Adjudication Response, and claimants must address them in the Adjudication Reply within five working days.
Stay
The Federal Court allowed more flexibility under Section 16, permitting stays where there are clear errors or to meet justice in individual cases. However, the Adjudication Decision remains temporarily binding, and stays should only preserve the adjudicated sum where necessary.
Interim Certificates in the Construction Industry are cumulative
The Federal Court held, citing Julian Bailey’s Construction Law Vol. 1, that progress claims and interim certificates are cumulative and do not exist as separate, stand-alone compartments. This has implications for claims brought to adjudication after prior court proceedings.
Moving forward
The Federal Court’s View Esteem decision was delivered on 6 November 2017. Statistics from the Asian International Arbitration Centre indicate that 711 adjudications were registered in 2017, with an estimated 100 commencing post-View Esteem. In 2018, AIAC anticipated 850 adjudications. Cases such as Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd & Another await Federal Court review, potentially revisiting Section 27(1) and the interpretation of jurisdiction.
In these uncertain times, it is prudent for parties to ensure their Payment Responses are comprehensive.
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.
