The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) came into force on 15 April 2014. Can a contract entered before 15 April 2014 be referred for adjudication under CIPAA?
JACK-IN PILE (M) SDN BHD V BAUER (MALAYSIA) SDN BHD [CIVIL APPEAL NO.: 02(F)-58-07/2018(B)]
- Jack-in Pile (M) Sdn Bhd (“Subcontractor”) was appointed by Bauer (Malaysia) Sdn Bhd (“Main Contractor”) on 16.3.2011 as its subcontractor for a project in Gombak (“Project”) for a sum of RM1,850,000 by a letter of award dated 16 March 2011 (“Agreement”).
- Under Clause 11.1 of the Agreement (“Said Clause”), all payments to the Subcontractor shall only be made within 7 days from the date of receipt by the Main Contractor of their related progress payments from the employer of the Project (“Employer”).
- Pursuant to the Said Clause, there is no obligation on the Main Contractor to make payment to the Subcontractor until and unless the Main Contractor has received payment from the Employer for the related progress payment and the Main Contractor had relied on the Said Clause.
- On 3 August 2016, the Subcontractor issued a payment claim to the Main Contractor pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”).
- Section 35 of CIPAA prohibits any conditional payment provisions in construction contracts which bring the Said Clause in breach of it.
- Payment disputes arose in respect of the Project and adjudication proceedings pursuant to the CIPAA were thus commenced by the Subcontractor.
- At the conclusion of the adjudication proceedings, the adjudicator delivered his decision whereupon the Main Contractor was required to pay the Subcontractor the adjudicated amount.
- At the High Court, the Main Contractor sought to set aside the adjudication decision whereas the Subcontractor sought to enforce the adjudication decision.
- The High Court allowed the Subcontractor’s claim to enforce the adjudication decision and dismissed the Main Contractor’s set aside application.
- Dissatisfied with the decision of the High Court, the Main Contractor appealed to the Court of Appeal.
- The Court of Appeal allowed the appeal and the Subcontractor appealed to the Federal Court.
FEDERAL COURT DECISION – APPEAL DISMISSED!
The Federal Court dismissed the appeal on the basis that CIPAA does not have retrospective effect, meaning it cannot apply to contracts before CIPAA came into force, being 15 April 2014. This is because retrospective interpretation of CIPAA will inhibit the exercise of the Main Contractor’s vested right as originally agreed between the Parties in the Agreement.