Introduction
At the start of January 2024, the Federal Court has made significant decisions concerning the adjudication proceeding under the Construction Industry Payment and Adjudication Act 2012 (CIPAA) that would change the future of adjudication. The majority judgment and dissenting judgment of 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 09.04.2015 (“Contract”). In carrying out the Project, Anas had engaged Perunding Kejuruteraan MSY and Perunding ZNA as independent professional consultants to provide a report on cracked beams as well as a safety report. Anas had incurred a sum of RM 855,074.21 (inclusive of GST 6%) as the consultants’ fee (“Consultants’ Fee”).
The dispute brought to be determined in the adjudication proceedings was the Consultants’ Fee. In the payment claim, Anas had 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 did not fall 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, by 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 12.09.2019 (“AD”), the adjudicator had allowed Anas’ claim. In coming to its determination, the adjudicator had relied on Clause 36.6 of the Contract instead of Anas’ pleaded clauses.
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 acted fairly and independently.
Before the Court of Appeal
Before the Court of Appeal (CA), both of the HC’s decision was set aside as it was ‘fatal’ when he 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 parties had not relied upon in their pleadings. The CA noted that the adjudicator had the powers to take the initiative to ascertain the facts and the law required for his decision pursuant to Section 25 CIPAA. 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) are as follows:
- Do the strict rules of pleadings, as applicable in civil claims before the Malaysian Courts, apply in adjudicating proceedings under CIPAA? – “Question 1”
- Whether the dicta in View Esteem Sdn Bhd v Bina Puri Holdings Bhd[1] prohibit an adjudicator from referring to a specific clause in a construction contract when allowing the claim when the said clause was not specifically stated in the payment claim and adjudication claim by the claiming party? – “Question 2”
- 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 excess in the jurisdiction, such that the said decision ought to be set aside? – “Question 3”
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) CIPAA and was of the view that an adjudicator’s jurisdiction is limited to matters referred to by parties to the adjudicator pursuant to Sections 5 & 6 CIPAA. By way of Section 5(b) CIPAA, a claimant shall 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 undoubtedly 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 and response. The Majority also noted that the AD does not show that the adjudicator had relied on the clauses relied upon 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 & 6 CIPAA, the Majority found that the adjudicator had exceeded his jurisdiction by deciding based on Clause 36.6. This is 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 the issue of whether there had been a breach of natural justice, the Majority held that the non-giving of an opportunity to the parties to submit on the application of Clause 36.6 before the adjudicator made his determination, is a denial of natural justice.
In so far as Question 1 is concerned, the Majority found that Question 1 does not arise and is misplaced given that Section 27(1) CIPAA has underlined 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’) raised 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 went on to look into Section 5 CIPAA. In this regard, the Minority held that while Section 5 required 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 for the purpose of ensuring that non-paying party is able to respond and thus, the details should be sufficient for its purpose. In this connection, it was noted that JKP had no difficulty at any stage to respond to Anas’ claim. Likening the situation to civil litigation, it is ‘fatal’ if a party relies on an un-pleaded issue, but this is not the case when a court or judge does the same. Thus, the CA was in error when 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.
A step further was taken by the Minority as upon scrutinizing the documents submitted in the adjudication proceedings, it was found that Clause 36.6 of the Contract had indeed been referred to by Anas in the 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 exchanged formed part of the payment claim and adjudication claim. Thus, due and proper regard ought to have been given to them.
Furthermore, JKP themselves had 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, that he is disentitled from looking at Clause 36 as a whole or worst, that he breached natural justice for so doing. It would also be naïve to suggest that an adjudicator was not allowed to look at the entirety of a construction contract for all of its full terms and effect. This is more so when it involves payment after termination.
For the said reasons, the Minority answered Question 1 in the negative and that Question 2 does not arise.
Notwithstanding, the Minority went on to answer Question 2 in the negative. In this regard, the Minority was of the view that the dicta in View Esteem had been mis-appreciated by the CA. The effect of the FC’s decision in View Esteem is simply that the adjudicator’s jurisdiction in relation to any dispute is limited to the matter of the claim which was referred to adjudication under Section 5 & 6 CIPAA. It is the ‘subject of the claim’ that is the limiting factor. Here, it was the Consultants’ Fees and nothing else.
As for Question 3, the Minority found that there was no basis to this question but proceeded to answer the same in the negative. Amongst her reasons, the Minority was of the view that Clause 36.6 of the Contract was not the basis for allowing the claim. It was not material but a peripheral issue in the adjudication proceedings. The perusal of the AD shows that the adjudicator had allowed the claim based on Anas having successfully proven on a balance of probabilities that JKP shall pay the Consultants’ Fees. It was noted that the adjudicator did not state that Clause 36.6 was the or only applicable provision but rather, it was simply ‘the most’ applicable provision. Based on the evidentiary documents, Clause 36.6 would have no real bearing on the outcome of the claim as Clauses 55 & 56 of the Contract are sufficient to accommodate the claim.
Before concluding, the Minority highlighted that the AD must be read as a whole and not cherry-picked as what has been done. Courts must endeavour to support and uphold the AD for its interim finality given that so long as the adjudicator confined himself to the dispute that was referred to him under Section 5 CIPAA, he has not exceeded his jurisdiction and there is no breach of natural justice even if he decides it wrongly.
The Minority thus concluded that the questions of law were answered in Anas’ favour.
Comment
The decision of the Majority requires strict adherence to s.5, CIPAA, interpreting adjudication documents to be akin to pleadings in court notwithstanding having decided Question 1 in the negative. Unpaid parties who seek to commence adjudication proceedings must clearly specify the provisions that they intend to rely upon from the get-go. Whilst its earlier decision in View Esteem was cited in extenso by the Federal Court as its basis, the Majority’s decision appears to depart from 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 for as long as the “matter” is referred to adjudication by the Payment Claim.
In any case, our respectful view is that the submissions in an adjudication process should not be likened to pleadings. A CIPAA adjudication ought to be accessible to parties who are not legally represented.
As a further observation, had the unpaid party cited Clause 36 of the contract as a provision rather than Clause 36.5 specifically, arguable the claim would have been found to be within jurisdiction. Seen in this light, the Majority’s decision appears overly strict.
Further, it is also necessary for unpaid parties to specify the content of their supporting documents in the main submissions given that the same may not be noticed or recognized as part of one’s ‘pleadings’. That appears to have been the case of Clause 36.6 in this case, which appears to have been cited in a referenced letter but not in the Payment Claim itself.
Meanwhile, to err on the side of caution, adjudicators would need to 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 parties – especially if they were not raised in the payment claim or payment 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