Ideal City Development Sdn Bhd v Pwc Bina Sdn Bhd (B-02(C)(A)-2277-11/2017)

2012.” Proceedings at the High Court [17] The appellant filed two applications before the High Court. First, was to stay the adjudication decision under section 16 of CIPAA 2012; the other was to set it aside under section 15. The respondent filed an application to enforce the adjudication decision when the appellant did not pay, as directed by the adjudicator. [18] In the application to set aside the adjudication decision under section 15 of CIPAA 2012, the appellant cited the following grounds: i. that the appointment of the adjudicator was null and void; ii. that the adjudicator had acted in excess of jurisdiction; iii. that there was a denial of the rules of natural justice; iv. that there was an absolute assignment of the respondent’s rights to United Overseas Bank [UOB]; that the respondent had no locus standi to initiate the adjudication proceeding or enforce the adjudication decision. [19] The application to set aside the adjudication decision was dismissed; and so was the application for stay. The respondent’s application for enforcement was then allowed. 12 Deliberations of the Court of Appeal [20] The same grounds that were canvassed before the learned Judge were relied on in this appeal. Having examined them, we find that the learned Adjudicator had acted in excess of jurisdiction and that the adjudication decision ought to and must be set aside. That being the case, we do not see any need to go into the other grounds relied on by the appellant save to say that those grounds are not sustainable. In that regard, we agree with the learned Judge on her reasoning when rejecting those grounds. [21] However, in respect of the complaint that there was excess of jurisdiction in that the adjudication proceedings related to a premature claim or that the adjudication was commenced prematurely, we disagree with the learned Judge. We find that the adjudicator had exceeded her jurisdiction and/or committed a jurisdictional error when she had adjudicated on a claim which commenced before the date of accrual of the cause of action. These are our reasons on the issue of excess of jurisdiction. [22] Section 15 of CIPAA 2012 provides as follows: Improperly procured adjudication decision

An aggrieved party may apply to the High Court to set aside an adjudication decision on one or more of the following grounds:

(a) the adjudication decision was improperly procured through fraud or bribery;

(b) there has been a denial of natural justice;

(c) the adjudicator has not acted independently or impartially; or 13

(d) the adjudicator has acted in excess of jurisdiction. [23] On the ground of excess of jurisdiction as provided in section 15(d), the Federal Court in View Esteem Sdn Bhd v Bina Puri Sdn Bhd [2017] 1 CLJ 677 had expressed the view that it is a ground that may be raised at the adjudication proceedings, even if it was not raised in the payment response. In fact, it was a ground properly relied on to set aside the adjudication decision under section 15 of CIPAA 2012. [24] In View Esteem, the adjudicator had declined to consider the defences raised in the Adjudication Response because there was no Payment Response filed. The appellant complained that this refusal was in breach of the rules of natural justice and the adjudication decision reached, one which was in excess of jurisdiction. [25] The Federal Court agreed with the appellant. The Federal Court recognized that “the “jurisdiction” spoken of in section 15(d) of CIPAA are in circumstances where CIPAA applies and where there is a dispute if the adjudicator has kept himself within his jurisdiction.” It was the understanding of the Federal Court that the term “jurisdiction” used in CIPAA 2012 was “in relation to matters within the scope of CIPAA”. [26] The Federal Court also explained the differences or the divide between “power” and “jurisdiction”, that “jurisdiction” relates to “the types of subject matter which the Court may deal with” whereas “powers may be exercised only in relation to that jurisdiction” before concluding that “…in the absence 14 of a prohibitory clause similar to section 15(3) of the Singapore Act 2006 and a similar restriction as above mentioned in the NSW legislation, there is no impediment for the Adjudicator to consider all the grounds of claim in an Adjudication Claim under section 9 of CIPAA, and all the grounds of defence in an Adjudication Response under section 10 of CIPAA.” [27] The Federal Court found that since the claim in question [Progress Claim No. 28 for the sum of RM23.8 million] was the subject matter of the claim in an action that was already filed in Court before the coming into force of CIPAA 2012, the Act did not apply. Section 41 of CIPAA saved this claim by excluding it from the operation of the Act. Once the Act does not apply to the claim in issue in the adjudication proceedings, then there is want of jurisdiction and any decision made may be challenged on the grounds of acting in excess of jurisdiction. [28] From a careful reading of the reasoning of the Federal Court, it is the decision of the Federal Court that a challenge on jurisdiction may be raised in Court to set aside an adjudication decision whether the complaint on jurisdiction relates to the scope of application of CIPAA 2012, or a complaint that there is an absolute lack of jurisdiction. Insofar as the latter is concerned, such a complaint “may be taken up at any time”, citing Chip Hup Hup Kee Construction Pte Ltd v Ssangyong Engineering & Construction Co Ltd [2010] 1 SLR 658 in support. [29] In our present appeal, the complaint on jurisdiction is in the sense of the claim being premature was a complaint that was not raised before the learned Adjudicator, and therefore never determined. From our appreciation 15 of the arguments, this issue of jurisdiction is one which is properly taken in an application made under section 15(d) of CIPAA 2012; and is in fact a challenge which may be raised at any stage. [30] From the records of appeal, it is patently clear that the adjudication proceedings in the instant appeal relate only to Interim Progress Certificate No. 29 dated 25.10.2016. The terms “Interim Progress Certificate”, “Interim Certificate” and “Payment Certificate” are used interchangeably by both parties, whether in the submissions or in the documents found in the records of appeal. Nothing turns on the different terms used. It refers to one and the same. [31] As mentioned by the respondent, clause 4.1 of the Letter of Award requires the payment of the sum specified in the Progress Certificate to be done 30 working days from the date of the Payment Certificate:

4.0 Payment Claim and Payment

4.1 All claims for works done on site shall be progressively on monthly basis. The claims shall to be submitted to the Architect and carbon copy to the Quantity Surveyors for their assessment and valuation for payments. The period of honouring the Interim Certificate is thirty (30) working days from the date of the Payment Certificate. The retention sum on each certification shall be at 10.0% to the limit of 5.0% of the agreed contract amount. [32] Since Interim Progress Certificate No. 29 is dated 25.10.2016, the 30 working days from the date of this certificate means that this Progress or Payment Certificate must be honoured by 6.12.2016. This date was the 16 specific finding of the learned Adjudicator based on the construction and application of clause 4.1 of the letter of award read together with clauses 3.1 and 3.7 – see pages 2 and 3 of the adjudication decision. At page 3, the learned Adjudicator said: Due Date for Payment Based on the conditions of payment for progressive claims mentioned above:- Payment Certificate No. PJCD360-CIC-029(B) dated 25 October 2016 for RM1,743,471.44 was due to be paid by the Respondent to the Claimant on 06 December 2016. [33] Before us, the respondent accepted that the due date for payment of Payment Certificate No. 29 is 6.12.2016. [34] The Payment Claim in this appeal was served on the appellant on 29.11.2016, before the due date for payment. The appellant submitted that the Payment Claim was premature in which case, the adjudication decision that was subsequently arrived at in respect of this Payment Claim is one made in excess of jurisdiction. [35] The respondent accepts that the Payment Claim was served on the appellant on 29.11.2016; before the date due for payment. [36] It is the submission of the respondent that regardless that state of affairs, the appellant is not entitled to rely on this ground because this issue of the claim being premature was never raised in the adjudication proceedings. Further, the issue became academic because from the date of 17 the initiation of the adjudication, the appellant failed and/or refused to honour Interim Payment Certificate No. 29. The respondent argued that it would be wasteful, both in terms of time and costs, to require another adjudication to be initiated. This was said to “defeat the intention of CIPAA 2012”. Yet, another line of argument was this - that another adjudication initiated for the same certificate after it became due, would have made similar findings of fact, that there is no prejudice occasioned as the imposition of interest is from the date when the payment was due; that there is no statutory provision whether in section 5 or anywhere else in CIPAA 2012 that requires the payment to be mature and due before becoming the subject matter in an adjudication proceedings. [37] The learned Judge agreed with the respondent, choosing to adopt the decision in Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd & Another [2017] MLJU 242, and the views expressed by Ivan Loo and Lam Wai Loo, learned authors of Construction Adjudication in Malaysia. [38] With respect, we disagree. In considering whether the learned Adjudicator has exceeded his jurisdiction, it is necessary for the Court to review the underlying facts and law which pertain to jurisdiction. [39] The primary object of CIPAA 2012 is “to facilitate regular and timely payment.” In order to do this and thereby deal with the problem of non-payment of claims for work or services rendered under a construction contract, the Act seeks “to provide a mechanism for speedy dispute resolution through adjudication, and to provide remedies for the recovery of payment in the construction industry”. It is not in dispute that the underlying 18 contract in this appeal is a construction contract as defined in section 4. This means that as a starting point, the adjudication mechanism is available to the contracting parties. [40] However, before the adjudication mechanism may be properly invoked, there is a preliminary process that must first be pursued. The failure to pursue this process has a serious impact on any adjudication proceedings which is subsequently initiated. The preliminary process relates to the establishment of a dispute, and this can be found at sections 5 to 7 of CIPAA

[41] It all starts with a payment claim, the requirements of which may be found in section 5. It is the unpaid party who serves on the non-paying party a payment claim. [42] On receipt of the payment claim, the non-paying party has various options available: from admission and payment under subsection 6(1) to disputing either the whole or part of the amount claimed through a document known as a “payment response”. There are timelines prescribed for all these steps. [43] In the case where a non-paying party fails to respond to a payment claim in the manner as provided in section 6, subsection 6(4) deems such a party to have disputed the entire payment claim. And, this is the position of the appellant, that it has disputed the respondent’s entire payment claim. Subsection 6(4) operates after the 10th working day of the receipt of the payment claim – see subsection 6(3). 19 [44] Where a payment response disputes in any way, the amount claimed in the payment claim, a payment dispute or a dispute over payment, arises. We would venture to say that in the case where no payment response was served, a payment dispute would deem to have arisen after the time stipulated in subsection 6(3) has lapsed. [45] Section 7 gives the unpaid party and also the non-paying party the option of referring that payment dispute to adjudication, which right can only be exercised after the expiry of the 10 working day period specified in subsection 6(3) that was referred to earlier: Right to refer dispute to adjudication

7.

(1) An unpaid party may serve a payment claim on a non-paying party for payment pursuant to a construction contract. [49] The terms “unpaid party” and “non-paying party” are specifically defined in section 4 of CIPAA 2012 as follows: “unpaid party” means a party who claims payment of a sum which has not been paid in whole or in part under a construction contract; 21 “non-paying party” means a party against whom a payment claim is made pursuant to a construction contract; [50] The essential characteristic of the “unpaid party” is the fact it is a party who claims that it has not been paid, whether wholly or partially, a sum under a construction contract. Such a claim cannot be validly raised unless and until the timing for payment has lapsed and the obligation to pay, breached. So, if the parties had allowed themselves terms of credit or a certain period of time within which payment must be made, that period must be allowed to lapse before the claiming party describes itself as an “unpaid party”. Where the time period or the date due for payment has lapsed, the party who has not been paid is then the “unpaid party.” This unpaid party may now properly make a payment claim. [51] The terms of subsection 5(2) supports this construction. Under paragraph 5(2)(a), an unpaid party is required to provide written details of inter alia the amount claimed and specify the due date for the payment of the amount claimed:

(a) the amount claimed and due date for payment of the amount claimed;

(b) details to identify the cause of action including the provision in the construction contract to which the payment relates;

(c) description of the work or services to which the payment relates; and

(d) a statement that it is made under this Act. [emphasis added] 22 [52] In this appeal, these were the facts pertaining to the payment claim. It is not in dispute that the due date for payment of the sum specified in the Interim Progress Certificate No. 29 is 6.12.2016. However, without waiting for this date to lapse, on 29.11.2016, the respondent issued and served on the appellant, a Payment Claim for the payment of the sum of RM1,743,471.44 as certified under Interim Payment Certificate No. 29 dated 25.10.2016. As at 29.11.2016, the payment of this sum is not due. [53] Since the payment of the sum is not due, the respondent cannot claim to be an “unpaid party”. Quite logically, the respondent can only ascribe itself as an unpaid party after 6.12.2016, the due date for payment of Interim Progress Certificate No. 29; even then, only where there is still non-payment after this date. Up until that date, the non-paying party is not as yet a non-paying party and cannot be so described. [54] The adjudication regime is not intended to deal with in futuro payments. It is specific regime for recovery of payment; and there cannot be recovery without the due date for payment having passed and there is still non-payment. [55] We do not find the decision in Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd & Another [supra] and the comments by Ivan Loo and Lam Wai Loo, in Construction Adjudication in Malaysia to be of any particular relevance in this instant appeal. In Terminal Perintis, the complaint was on the lack of details or compliance with the requirements of subsection 5(2), that a valid cause of action including the relevant provision of the 23 construction contract had not been set out in the payment claim, to which the learned Judge made the following remarks: [59] No doubt the expression of a “cause of action” is used in section 5(2)(b) CIPAA but that is nothing more than saying that the Claimant must set out the basis of their claim in contract. [56] Similarly, at page 74 of their work, the learned writers, Loo and Lam were dealing with the matter of the contents of the payment claim as opposed to the status of the parties:

4.26 The unpaid party is required to state in his payment claim the amount claimed and the due date payment of the amount claimed. These requirements necessarily imply that every construction contract should provide an adequate mechanism for determining what, when and such terms, of if the contract does not provide an adequate mechanism for determining what, when and how payments are due under the construction contract, the default provisions on the terms of payment provided by section 36(1) of the CIPAA Act 2012 would be imported into the construction contract.

4.27 The unpaid party is only required to state in the payment claim the amount claimed to be due. If does not matter whether amount claimed may not in law be due. The right of an unpaid party to serve a valid payment claim is predicated on an amount being claimed, and not on there being an actual entitlement to the amount so claimed. 24 [57] That is not the complaint here. The issue in the present appeal concerns the critical status of the respondent as an unpaid party and the appellant as a non-paying party as only an unpaid party as defined under the Act can validly initiate the adjudication process under CIPAA 2012. And, as we have seen, the respondent was in no way an unpaid party on the date of the issue and service of the payment claim. Since it is not an unpaid party, the respondent could not validly invoke the adjudication mechanism and set that mechanism in motion. [58] We do not consider the arguments raised by the respondent in opposing reliance on this ground to be of merit. The adjudication regime established under CIPAA 2012 contains clear guiding provisions on how the whole adjudication process is invoked, from commencement to conclusion. For the mechanism to work efficiently, the clear terms of the adjudication process must be adhered to. CIPAA 2012 is not and cannot be argued to be a mechanism for speedy dispute resolution of payment disputes in all circumstances. Though the provisions are wide and extensive, it is only in the conditions and circumstances as prescribed. For the system to engender confidence, it must be a system where the elements of fair play to both the unpaid and non-paying parties are incorporated. The parties have a right to expect that the adjudication regime will not be resorted to or invoked until and unless certain conditions including contractual timelines have lapsed. [59] The regime is not intended for all disputes between the parties; it is only for payment disputes where either the amounts claimed for work or services rendered are not met in full or in part, or where such payments are 25 not regular or timely. Certainly in our present appeal, it is a material and relevant consideration and complaint in terms of jurisdiction. [60] Hence, the first requirement that the payment dispute must state the due date for payment of the sum claimed; that at the time of initiation of the claim, it must be immediately obvious that the payment has been delayed or has not been forthcoming. This is part of the minimums required to trigger the adjudication regime. The merits of such a claim is a matter for the determination of the adjudicator using her inquisitorial powers. [61] In fact, the learned authors, Chow Kok Fong, Lim Chong Fong and Oon Chee Kheng in the first book to be written on adjudication entitled “Adjudication of Construction Payment Disputes in Malaysia: Navigating the Construction Industry Payment and Adjudication Act”, page 227 [LexisNexis 2014] acknowledged that there are certain jurisdictional matters which are material and which affect the validity of the whole adjudication claim. Amongst them is the validity of the payment claim itself, that it is essential that such a claim is valid in order “to trigger the process which eventually leads to the adjudication proceedings. An invalid payment claim is not capable of crystallizing a dispute which falls within the ambit of the Act.” [62] Thus, the “adjudication dispute” here that went to the adjudication was not one within the jurisdiction of the learned Adjudicator to decide. Although this complaint was not raised in the adjudication proceedings, consistent with and applying the decision of the Federal Court in View Esteem Sdn Bhd v Bina Puri Sdn Bhd [supra], this complaint raised at the High Court meant that the adjudication in the present appeal was a non-starter. We must add that 26 although this was not argued by the respondent, we are not inclined to treat this aspect of jurisdiction as one which was a mere procedural irregularity or non-compliance which could have been waived. [63] For the reasons explained, the appeal must therefore, be allowed on this ground alone. The orders of the High Court are hereby set aside. Dated: 9th November 2018 (MARY LIM THIAM SUAN) Judge Court of Appeal Malaysia 27 Counsel/Solicitors For the appellant: G. H. Tee (Siew Kai Lee with him) Messrs. GH Tee & Co. No. 22A-3, Jalan PJU 8/3A Perdana Business Centre Bandar Damansara Perdana 47820 Petaling Jaya Selangor Darul Ehsan For the respondent: Daniel Lau Messrs. CK Oon & Co. L3A-3A, Wisma BU8 No. 11, Lebuh Bandar Utama Bandar Utama Damansara 47800 Petaling Jaya Selangor Darul Ehsan