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CIPAA: Forward or Backward?

Loshini Ramarmurty explains the first reported case on the Construction Industry Payment and Adjudication Act 2012

The Construction Industry Payment and Adjudication Act 2012 ("CIPAA") came into force on 15 April 2014 ("Commencement Date"). Thereafter, the Kuala Lumpur Regional Centre for Arbitration ("KLRCA") issued Circular 01 dated 23 April 2014 which states that it would administer and appoint adjudicators for adjudication cases in respect of any payment disputes "which arose under a construction contract on or after 15 April 2014, regardless of whether the relevant construction contract was made before or after 15 April 2014."

 

This position has now changed in light of the recent decision of UDA Holdings Bhd v Bisraya Construction Sdn Bhd (24C-6-09/2014) ("UDA Holdings") and Capitol Avenue Development Sdn Bhd v Bauer (M) Sdn Bhd (24C-5-09/2014) ("Capitol Avenue Development") which, inter alia, deals with the fundamental issue as to whether CIPAA operates retrospectively or prospectively.

BRIEF FACTS

The disputes in UDA Holdings arose out of a construction contract dated 16 October 2009, whilst those in Capitol Avenue Development, from a letter of award dated 13 May 2013.

Court proceedings in the two cases were filed by the respective plaintiffs, namely UDA Holdings Bhd ("UDA") and Capitol Avenue Development Sdn Bhd ("Capitol"), around the same time. The issues in both cases arose from adjudication proceedings commenced under CIPAA and can be broadly divided into two categories.

The first concerned the challenge by the respondents, in both instances, of the jurisdiction of the adjudicator and the locus standi of the claimant to initiate adjudication proceedings.

In the second category of issues, the respondents in both cases disputed the applicability of CIPAA to their respective disputes as their payment disputes had arisen under construction contracts which had been entered into before the Commencement Date.

The Court took the view that the first set of issues relating to the locus standi of the claimant in the adjudication proceedings and the jurisdiction of the adjudicator should be taken up before the adjudicator instead of the Court and accordingly, declined to deal with those issues.

As regards the second category, which concerned the operation of CIPAA, i.e. whether it applies to payment disputes and underlying contracts that were made before the Commencement Date of CIPAA, the Court was of the view that the cases should be heard together as the issue was common to both cases. KLRCA attended the Court proceedings as amicus curiae.

THE POSITIONS CANVASSED

Three positions were canvassed before the High Court Judge, namely, that:

  1. CIPAA applies prospectively in that it applies to payment disputes which arose under a construction contract made on or after the Commencement Date;
  2. CIPAA applies retrospectively in that it applies to all payment disputes, regardless of whether they arose before or after the Commencement Date, or under a construction contract made before the Commencement Date;
  3. IPAA applies retrospectively in the manner stated in KLRCA Circular 01 in that it applies to construction contracts made before or after the Commencement Date, but only in respect of payment disputes arising on or after the Commencement Date.

THE DECISION OF THE HIGH COURT

Sections 2, 3 and 41 of CIPAA

The Court identified Sections 2, 3 and 41 of CIPAA as provisions to answer the issue. The Court stated that it is clear from section 2 that Parliament's intention is for CIPAA to apply to all construction contracts made in writing, regardless of when those contracts were made so long as those construction contracts are to be carried out wholly or partly within the territory of Malaysia.

The Court said that this intention is also manifested in Section 3 of CIPAA which only, excludes from its ambit, any construction contract entered into by a natural person for construction work in respect of any building which is less than four storeys high and which is wholly intended for his occupation.

The Court further added that Section 41, when read together with Section 2, excludes from the operation of CIPAA, only those construction contracts in respect of which proceedings have been commenced in court or arbitration before the Commencement Date.

Other jurisdictions

The Court observed that certain jurisdictions, such as the United Kingdom, New Zealand, Singapore and certain States within Australia, have expressly provided that their corresponding legislation apply only to construction contracts made after the date on which the legislation came into force. Accordingly, these jurisdictions do not encounter a similar issue as that under CIPAA.

Capitol argued that the statutory adjudication regimes in South Australia and Tasmania were silent on the application of their corresponding legislation and added that an analysis of all reported cases in those jurisdictions showed that such legislation had been applied prospectively. The Court rejected this argument on the basis that the cases cited did not shed any light on the issue as to whether the relevant legislation applies prospectively or retrospectively as that issue did not come up for consideration by the courts.

Further, the Court compared the saving provision found in the South Australian legislation with Section 41 of CIPAA and commented that there was a marked difference between the two and accordingly, the positions in other jurisdictions did not alter the interpretation reached by the Court in relation to CIPAA.

Crystallisation of the payment dispute

The Court rejected the argument that CIPAA only applies to payment disputes which arose on or after the Commencement Date on the basis that CIPAA does not make any provision for such distinction in its application. The Court was of the view that Section 2 of CIPAA was the material determinant of the application of CIPAA and Section 2 clearly provides that the application of CIPAA is to be determined by reference to a construction contract which satisfies the requisites set out in that section and not to the payment dispute or the cause of action.

Character of CIPAA

(i) Procedural legislation

The Court opined that CIPAA is in character, truth and substance, a procedural and adjectival legislation and such legislation is presumed in law to apply retrospectively unless there is clear contrary intention in the statute itself.

The Court relied on the Federal Court's decision in Westcourt Corporation Sdn Bhd v Tribunal Tuntutan Pembeli Rumah [2004] 4 CLJ 203 ("Westcourt") in concluding that CIPAA is essentially an Act which provides an additional forum by way of statutory adjudication. Accordingly, CIPAA being a legislation which provides an additional forum is retrospective in its operation as there is no provision in it to the contrary.

(ii) Social legislation

The Court considered CIPAA as falling within the category of "social legislation" on the basis that CIPAA is for the good and benefit of society. In Westcourt, the Court of Appeal was of the view that since the relevant law, namely the Housing Development (Control and Licensing) Act 1966, was a piece of social legislation, its provisions should be given a liberal and purposive interpretation and cited the Federal Court's decisions in Kesatuan Kebangsaan Wartawan Malaysia & Anor v Syarikat Pemandangan Sinar Sdn Bhd & Anor [2001] 3 CLJ 547 and Hoh Khiang Ngan v Mahkamah Persekutuan Malaysia & Anor [1996] 4 CLJ 687 as authorities for this proposition of law.

In applying a liberal and purposive interpretation to CIPAA, it follows that the choice of an additional forum of resolution should be offered to all unless there is a clear provision to the contrary. Given that no such provisions to the contrary exist, the application of CIPAA is retrospective.

Substantive rights

KLRCA, UDA and Capitol submitted that CIPAA contained provisions, i.e. Sections 13, 28, 29, 30, 35, 36 and 37, which deal with substantive and not procedural matters and as such, should not be interpreted to apply retrospectively.

The Court rejected this argument. The learned Judge analysed the principles of statutory interpretation laid down by the apex court of Malaysia in various cases, such as Lee Chow Meng v Public Prosecutor [1978] 2 MLJ 36; Yew Boon Tew & Anor v Kenderaan Bas Mara [1983] 1 MLJ 1; Sim Seoh Beng @ Sim Sai Beng & Anor v Koperasi Tunas Muda Sungai Ara Berhad [1995] 1 MLJ 292, and concluded that:

" ... the construction and interpretation that the Court has given to the issue of the retrospective application of CIPAA in no way derogates or offend the principles established and followed in these cases ..."

In comparing CIPAA with the laws that were considered in the case authorities on statutory interpretation, Her Ladyship opined that the most significant distinguishing factor is that CIPAA is an entirely new legislation. The Court found that in the earlier cases, substantive rights had already been conferred by existing written laws and the amending laws sought to alter those rights, whether by revoking them or affecting them in some way or other.

The Court stated that in comparison, there was no existing written law to begin with in the case of CIPAA and that the provisions which are submitted to be substantive rights are in reality not rights of the nature recognised by the Courts as being substantive rights.

Purposive Interpretation

The Court held that the principle of purposive interpretation of statutes embodied in Section 17A of the Interpretation Acts 1948 and 1967 applied to address the concern of the possibility that Section 2 of CIPAA provides only for a prospective application of the legislation.

Section 17A provides that in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object.

The Court concluded that, taking into account the object, intent and purpose of Parliament in enacting CIPAA to provide a choice of forum for a speedy, interim and relatively cheap resolution of payment disputes under construction contracts, the construction that would promote the purpose and object of CIPAA is one that enables it to be made available to all, regardless of when the construction contract or payment dispute arose.

CONCLUSION

This decision of the High Court means that all payment disputes under any construction contract can be referred to adjudication under CIPAA regardless of when the construction contract was made or when the payment dispute arose - the only exceptions being a construction contract in respect of which the payment dispute is already the subject of court or arbitration proceedings as provided in Section 41 and a construction contract by a natural person for the construction of a building which is less than four storeys and is intended wholly for his occupation under Section 3 of CIPAA.

In light of the Court's decision in the cases discussed above, KLRCA issued Circular 1A on 11 November 2014 which supersedes Circular 01. The new circular adopts the position taken by the Court in this case.

The cases went on appeal and are presently part-heard before the Court of Appeal. It will be interesting to see whether the Court of Appeal will uphold the decision of the High Court or adopt the position stated in the now superseded KLRCA Circular 01, or hold that CIPAA should apply wholly prospectively.

Writer's e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

SUBJECT MATTER: CASE COMMENTARY

WRITER'S NAME: LOSHINI RAMARMUTY

WRITER'S PROFILE:

Loshini graduated from Cardiff University in 2008. She is an Associate with the Dispute Resolution Division of SKRINE.

 
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