Introduction
At the start of January 2024, the Federal Court made significant decisions concerning adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) that would change the future of adjudication. The majority and dissenting judgments in Anas Construction Sdn Bhd v JKP Sdn Bhd and another appeal [2024] MLJU 53 are discussed here.
Facts
The Respondent, JKP Sdn Bhd (“JKP”), had appointed the Appellant, Anas Construction Sdn Bhd (“Anas”), as the main contractor for a construction project in Penang (“Project”) by way of a construction contract dated 9.4.2015 (“Contract”). In carrying out the Project, Anas engaged Perunding Kejuruteraan MSY and Perunding ZNA as independent professional consultants to provide reports on cracked beams as well as a safety report. Anas incurred a sum of RM855,074.21 (inclusive of 6% GST) as the consultants’ fee (“Consultants’ Fee”).
The dispute brought to be determined in the adjudication proceedings concerned the Consultants’ Fee. In the payment claim, Anas pleaded Clauses 28, 55 and 56 of the Contract to establish its cause of action against JKP. Meanwhile, in the payment response, JKP disputed that the claim fell within the meaning of a “construction contract” and further contended that in the “revised final draft claim”, the Consultants’ Fee had been deleted.
In the adjudication claim papers, Anas relied on the same clauses to support its claim, i.e., Clauses 28, 55 and 56 of the Contract. Meanwhile, in the adjudication response, JKP contended that the relevant clause in relation to Anas’ claim would be Clause 36.5 of the Contract – which was not relied upon by Anas.
By way of the adjudication decision dated 12.9.2019 (“AD”), the adjudicator allowed Anas’ claim. In reaching his determination, the adjudicator relied on Clause 36.6 of the Contract instead of the clauses pleaded by Anas.
Before the High Court
The High Court (“HC”) allowed the enforcement of the AD and dismissed the setting-aside application. The HC found that the adjudicator did not act beyond his jurisdiction and had acted fairly and independently.
Before the Court of Appeal
Before the Court of Appeal (“CA”), both of the HC’s decisions were set aside as it was “fatal” when the adjudicator decided based on a clause not relied upon by Anas. The adjudicator had thus acted in excess of his jurisdiction. There was a further denial of natural justice when the adjudicator failed to invite parties to submit on a clause that neither had relied upon in their pleadings.
The CA noted that the adjudicator had powers under Section 25 of CIPAA to take the initiative to ascertain the facts and the law required for his decision. However, the CA disagreed that “such power extends to enable the adjudicator to unilaterally cherry-pick a specific clause of the underlying contract to make out a cause of action for a claimant where the claimant has been put on notice that the clauses relied upon are not applicable”.
Before the Federal Court
Aggrieved, Anas appealed against the CA’s decisions. The questions of law before the Federal Court (“FC”) were as follows:
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Question 1: Whether the strict rules of pleadings, as applicable in civil claims before the Malaysian courts, apply in adjudication proceedings under CIPAA.
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Question 2: Whether the dicta in View Esteem Sdn Bhd v Bina Puri Holdings Bhd prohibit an adjudicator from referring to a specific clause in a construction contract when allowing a claim, where the said clause was not specifically stated in the payment claim and adjudication claim by the claiming party.
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Question 3: In a CIPAA decision, does the adjudicator’s consideration of a specific clause in the construction contract, not specifically stated in the payment claim or adjudication claim, without inviting parties to further submit on the said clause, amount to a breach of natural justice or an act in excess of jurisdiction such that the decision ought to be set aside?
As stated at the start of this article, there is a majority and a dissenting judgment. We will first look at the majority judgment.
Majority Judgment
The majority of the panel – Abdul Rahman Sebli CJ and Nordin Hassan FCJJ (“Majority”) – took the plain meaning of Section 27(1) of CIPAA and held that an adjudicator’s jurisdiction is limited to matters referred to by parties to the adjudicator pursuant to Sections 5 and 6 of CIPAA. Under Section 5(b) of CIPAA, a claimant must include the cause of action and the provision under the contract that supports the said cause of action.
Upon perusal of the AD, the Majority noted that the adjudicator had relied on Clause 36.6 of the Contract to allow Anas’ claim – a clause that was neither relied upon nor mentioned in the payment claim or response. The Majority also noted that the AD does not show that the adjudicator had relied on the clauses pleaded by Anas in its payment claim to establish its cause of action.
Given that the adjudicator’s jurisdiction is limited to matters referred to under Sections 5 and 6 of CIPAA, the Majority found that the adjudicator had exceeded his jurisdiction by deciding based on Clause 36.6. This was coupled with the fact that the parties had not given their written consent for the adjudicator to extend his jurisdiction – which, in the opinion of the Majority, ought to have been done by the adjudicator.
As to whether there had been a breach of natural justice, the Majority held that the failure to give parties the opportunity to submit on the application of Clause 36.6 before the adjudicator made his determination amounted to a denial of natural justice.
Insofar as Question 1 is concerned, the Majority found that Question 1 did not arise and was misplaced, given that Section 27(1) of CIPAA underlines the limited jurisdiction of the adjudicator.
For these reasons, the Majority dismissed the appeals.
Dissenting (Minority) Judgment
At the start of her judgment, the minority of the panel – Mary Lim Thiam Suan FCJJ (“Minority”) – emphasized the importance of CIPAA and held that any interpretation and application of it must always have the ethos and intent of CIPAA in mind, i.e., “that the decision under scrutiny of the Court bears the unusual hallmark of temporary or interim finality; and the Courts should strive to give a reading of the provisions in CIPAA that is consistent with and implements that purpose and intent”.
The Minority then examined Section 5 of CIPAA. In this regard, the Minority held that while Section 5 requires details of the provisions in the contract to be set out, the lack of particularity or specificity is not fatal. This is because Section 5 is silent as to how much detail should be provided. The purpose of identifying the cause of action is to ensure that the non-paying party is able to respond, and thus, the details should be sufficient for that purpose. In this connection, it was noted that JKP had no difficulty at any stage in responding to Anas’ claim.
Likening the situation to civil litigation, the Minority observed that it is “fatal” if a party relies on an unpleaded issue, but not if a court or judge does the same. Thus, the CA erred in concluding that the adjudicator’s reliance on Clause 36.6 of the Contract was fatal, as the CA had taken a “pedantic technical approach without proper and due regard to the whole scheme” of CIPAA.
The Minority went further, noting that Clause 36.6 of the Contract had indeed been referred to by Anas in correspondence exchanged with JKP. These letters were cited in the payment claim and adjudication claim and formed part of the supporting documents. In her opinion, these letters formed part of the payment claim and adjudication claim, and due and proper regard ought to have been given to them.
Furthermore, JKP themselves referred to Clause 36.5 of the Contract in their adjudication response. The Minority noted that it would be unreasonable to insist that the adjudicator ignore the rest of Clause 36, or to suggest that he breached natural justice for considering it. It would also be naïve to suggest that an adjudicator is not allowed to look at the entirety of a construction contract for its full terms and effect, especially when it involves payment after termination.
For these reasons, the Minority answered Question 1 in the negative and found that Question 2 did not arise.
Notwithstanding, the Minority proceeded to answer Question 2 in the negative, holding that the dicta in View Esteem had been misappreciated by the CA. The effect of the FC’s decision in View Esteem is that an adjudicator’s jurisdiction in relation to any dispute is limited to the matter of the claim referred to adjudication under Sections 5 and 6 of CIPAA — it is the “subject of the claim” that is the limiting factor. Here, that subject was the Consultants’ Fees and nothing else.
As for Question 3, the Minority found no basis for it but nevertheless answered it in the negative. Among her reasons, the Minority observed that Clause 36.6 of the Contract was not the basis for allowing the claim; it was peripheral. The AD showed that the adjudicator had allowed the claim based on Anas having successfully proven, on a balance of probabilities, that JKP was liable to pay the Consultants’ Fees. Clause 36.6 was not the sole applicable provision but merely “the most applicable” one. Based on the evidentiary documents, Clause 36.6 would have had no real bearing on the outcome of the claim, as Clauses 55 and 56 of the Contract were sufficient to accommodate it.
Before concluding, the Minority emphasized that the AD must be read as a whole and not “cherry-picked” as had been done. Courts must endeavour to support and uphold an AD for its interim finality, so long as the adjudicator confines himself to the dispute referred to him under Section 5 of CIPAA. Even if decided wrongly, it would not amount to a breach of natural justice.
The Minority thus concluded that the questions of law were answered in Anas’ favour.
Comment
The decision of the Majority requires strict adherence to Section 5 of CIPAA, interpreting adjudication documents to be akin to pleadings in court, notwithstanding its conclusion on Question 1. Unpaid parties who seek to commence adjudication proceedings must clearly specify the contractual provisions they intend to rely upon from the outset.
While the earlier decision in View Esteem was cited extensively by the Federal Court as its basis, the Majority’s decision appears to depart from the approach in View Esteem, where a more relaxed approach to jurisdiction was observed. In View Esteem, the Federal Court held that the adjudicator had jurisdiction so long as the “matter” was referred to adjudication by the payment claim.
In our respectful view, submissions in an adjudication process should not be likened to pleadings. A CIPAA adjudication ought to remain accessible to parties who are not legally represented.
As a further observation, had the unpaid party cited Clause 36 of the Contract generally, rather than Clause 36.5 specifically, arguably the claim would have been found to be within jurisdiction. Seen in this light, the Majority’s decision appears overly strict.
Further, it is necessary for unpaid parties to specify the content of their supporting documents in their main submissions, as such documents may not otherwise be recognized as part of one’s “pleadings”. That appears to have been the case for Clause 36.6 here, which was cited in a referenced letter but not in the payment claim itself.
To err on the side of caution, adjudicators should take a proactive approach in seeking parties’ submissions before deciding based on a particular point or clause that was not specifically relied upon by either party — especially if it was not raised in the payment claim or response.
With these new developments, has adjudication become too complicated?
For further information on this topic, please contact Tasha Lim Yi Chien at Gan Partnership by telephone (+603 7931 7060) or email (tasha@ganlaw.my).
The Gan Partnership website can be accessed at www.ganlaw.my.
Endnotes
(1) [2018] 2 MLJ 22
(2) [2024] MLJU 53
(3) [2024] MLJU 54
