INTRODUCTION
The enactment of the Construction Industry Payment and Adjudication Act 2012 (Act 746) ("CIPAA") which came into force on 15th April 2014 was greeted with much fanfare in Malaysia, particularly amongst those in the construction industry. As provided for in the long title to CIPAA, the introduction of this statute was and is to "facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in the construction industry and to provide for connected and incidental matters."
Whilst the introduction of CIPAA has been generally been viewed favourably by the construction industry as well as by the legal fraternity, several issues have arisen as a consequence of the manner in which some of the specific statutory provisions within CIPAA have been drafted. To this end, one of the burning issues which has plagued CIPAA since its inception is whether the Act is to be applied retrospectively or prospectively. Given the absence of an express statutory provision within CIPAA addressing this issue, it has been left to the courts in Malaysia to ascertain whether CIPAA is to be applied retrospectively or prospectively particularly given that a number of constructions contracts would have been entered into in writing prior to 15th April 2014.
The courts in Malaysia for a significant period of time arising from the decisions in UDA Holdings Bhd v Bisraya Constructions Sdn Bhd & Anor and another case [2015] 11 MLJ 499, View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 and Bauer (M) Sdn Bhd v Jack-In Pile (M) Sdn Bhd and another appeal [2018] 4 MLJ 640 took conflicting positions. On 16th October 2019, the Federal Court first delivered its decision in Ireka Engineering & Construction Sdn Bhd1 v PWC Corporation Sdn Bhd2 and thereafter delivered its decision in the related appeals in Jack-in Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd3 by way of Federal Court Civil Appeal No. 02(f)-58-07/2018(B) and Federal Court Civil Appeal No. 02(f)-59-07/2018(B). The decisions of the Federal Court in Ireka Engineering and Jack-in Pile have put the issue of whether CIPAA is to have retrospective effect or is to only apply prospectively to rest.
Before examining the decisions of the Federal Court in both Ireka Engineering and Jack-in Pile, it is first necessary to take cognisance of the decision in UDA Holdings as well as in View Esteem to enable one to have a full understanding of the legal arguments pertaining to whether CIPAA ought to have retrospective or prospective effect.
UDA HOLDINGS
The decision of the High Court in UDA Holdings must be given due consideration. In UDA Holdings, one of the principal issues raised by the plaintiffs (who were the respondents in the adjudication proceedings) was that the adjudication notices were outside the purview of CIPAA which has no retrospective application as the adjudication claims arose and crystallized before the coming into effect of the said Act. As such, it was asserted that the adjudicator had no jurisdiction to adjudicate the claims under CIPAA.
Madam Justice Mary Lim (as she then was) in delivering the judgment of the High Court in UDA Holdings embarked on a detailed analysis of the (i) the statutory framework and provisions of CIPAA as a whole, (ii) the intention of Parliament by reference to debates recorded in Hansard and the application of the purposive approach to the construction of statutes, (iii) a comparative analysis of the experiences in other jurisdiction with specific regard to the United Kingdom, Australia, Singapore and New Zealand and (iv) the notion of 'the substantive rights argument'.
The High Court was of the view that it was necessary to ask the burning question as to why Parliament had seen it fit to enact such an elaborate piece of legislation for just this aspect of the construction industry?
In answering this question, the High Court was of the view that the objectives of CIPAA relate to or is connected with payment, be it to facilitate regular and timely payment, provide speedy dispute resolution through adjudication which is about payment and remedies for the recovery of payment in the construction industry4.
The High Court drew support for the above by reference to Parliamentary debates recorded in Hansard held on 2nd April 2012 and 7th May 2012 with specific regard to statements made by the Deputy Minister that the construction industry experienced problems over payments, be it non-payment, late payment or insufficient payment, which necessitated the introduction of CIPAA to alleviate these cash flow problems in the construction chain5 . In addition, the High Court embarked on a comparative analysis to the statutory provisions in the United Kingdom, Australia, Singapore and New Zealand.
Having adopted the above approach as a basis for its judicial analysis, the High Court then made the following findings:
- At paragraph 136:
"[136] Seen in its proper perspective, it cannot be denied that adjudication is nothing more than a dispute resolution mechanism. It is a regime, a process or procedure before which the parties' disputes or differences over payments claimed by one party against the other party will be determined by an adjudicator. That adjudicator's decision (as opposed to an award or an order) though enforceable, is only provisional for the intervening period, commonly referred to as 'temporary finality'. Through CIPAA, adjudication is offered on a statutory framework and it is offered as an additional alternative to existing payment dispute resolution forums such as the courts and arbitrations specially and specifically for the construction industry. This is clear from the speeches of the Deputy Minister as reported in Hansard; the regimes practiced in other jurisdictions, case law discussed; as well as reading of the provisions of CIPAA, in particular ss 13 and 37."
- At paragraph 155:
[155] I am of the respectful view that this is artificial and a fallacy. Adjudication and the Act for that matter, is but a piece of legislation emplaced by Parliament to provide for, inter alia, a mechanism to speedily settle payment disputes which in reality are disputes over interim and final progress claims. The payment disputes arise under the construction contract that underpins the relationship between the parties; and Parliament has decided to legislate by reference to the construction contract and not, the payment dispute. That is the material or relevant point of reference; and not the date of the payment dispute. We should not attempt to rewrite those terms lest the court be accused of trespassing on the jurisdiction of Parliament to legislate. See the decision of NKM Holdings Sdn Bhd v Pan Malaysia Wood Bhd [1987] 1 MLJ 39 in this regard."
- At paragraph 160:
"[160] For this, I return to the ethos of CIPAA. Since it is to provide a speedy procedure for the temporary resolution of payment disputes in construction contracts through the introduction of a fresh or new forum called 'adjudication', it would be appropriate to say that such legislation is in character, truth and substance, procedural and adjectival legislation. Such legislation or statute is presumed in law to be applied retrospectively unless there is clear contrary intention in the statute itself. Support for this principle of statutory interpretation can be found in the Indian Supreme Court's decision in New India Insurance Co Ltd v Smt Shanti Misra AIR 1976 SC 237 at p 240, where it was held:
On the plain language of Sections 110A and 110F there should be no difficulty in taking the view of the change in law was merely a change of forum i.e., a change of adjectival or procedural law and not of substantive law. It is a well-established proposition that such a change of law operates retrospectively, and the person has to go to the new forum even if his cause of action or right of action accrued prior to the change of forum. If by express words the new forum is made available to causes of action arising after the creation of the forum, then the retrospective operation of the law is taken away. Otherwise the general rule is to make it retrospective."
- At paragraph 170 to 173:
"[170] Similarly, these aspects are present in CIPAA and they are immensely important, and one must not lose sight of what CIPAA essentially is – a choice of forum. That being so, and applying the well-established principle that legislation providing for this change of forum in the form of an additional forum known as adjudication, retrospective in operation unless there is provision to the contrary, and there is none here, CIPAA is indeed retrospective. There are clear provisions to the contrary in the legislations of those jurisdictions that Parliament and now, this court have looked at. The existence of those clear provisions to the contrary may be said to further confirm the opinion of this court on this point. CIPAA therefore applies to construction contracts regardless the dates when such contracts were made. Obviously, the construction contracts in the two cases before the court today come under the operation of the Act.
[171] Even if this court is in error in considering CIPAA as procedural legislation, this court will nevertheless consider CIPAA as falling within the category of 'social legislation' as described by the Court of Appeal and affirmed by the Federal Court in Westcourt Corp Sdn Bhd. While there is no definition of what exactly 'social legislation' is, it would be fair and reasonable to say that it would refer to legislation which is for the good and benefit of society.
[172] Going back to where we started on all the reasons why CIPAA was contemplated in the first place, the ills and stagnation of projects because of the starving of cash flows suffered by subcontractors and sub-sub contractors along the construction chain that Parliament had every intention of overcoming so that the construction industry, which contributes so substantially to the nation's economy, could get on with what it does best, and that is building quality buildings and infrastructure; it is difficult to say that CIPAA does not come within the understanding of 'social legislation'.
[173] In fact, I would go so far as to say that legislation which encourages any dispute to be resolved in a forum other than the court system must surely be construed as social legislation. Hence, CIPAA which provides adjudication as an alternative forum for payment dispute resolution as opposed to resorting to the court and arbitration, a liberal and purposive interpretation must be adopted in relation to CIPAA. In so doing, the choice of an additional forum of resolution should surely be offered to all unless there is clear provision that it is not. Since there are no such provisions to allow for such an interpretation, CIPAA is retrospective insofar as the construction contracts are concerned; and that would include the present construction contracts before the court."
"[207] The position under CIPAA is distinctly different. There was no existing law to begin with. These sections which the parties have identified as provisions affecting their substantive rights are in reality not of the nature and description as that properly understood and accepted by the courts as being part of substantive or substantive rights. What the parties actually have are their own terms and conditions on these matters and emanating from their respective underlying construction contracts. These terms and conditions of contract are not the rights recognised and understood in those cases relied on and under s 30 of the Interpretation Acts to begin with.
[208] Even if accepting for a moment that these terms and conditions do and can amount to 'existing rights', such rights have not 'vested', 'accrued' or 'acquired' to the extent of warranting some degree of recognition or protection by the court by reason of the rules of simple fairness. This has not happened in either of the two cases before the court. Because if they have indeed vested in that these terms and conditions have been relied on, Parliament has clearly preserved those circumstances or situations under s 41. It is, of course, open to Parliament 'to enact legislation which alters the mutual rights and obligations of citizens; and in any case, 'Most Acts of Parliament, in fact, do interfere with existing rights.
[209] Furthermore, it is clear from all the decisions discussed that it is not a case that if there are vested or substantive rights, those rights can never be altered. The position in law is that even those rights are not absolute and rigid. They can be affected. What is required as part of 'simple fairness', is that there be clear words of such will or intention from Parliament; or that a reading of the whole legislation brings one necessarily to that conclusion; or if a purposive interpretation has that effect.
[210] Applying those principles, it is the view of this court that the cases cited by learned counsel for the respective plaintiffs may be distinguished on the basis that CIPAA is new procedural legislation introducing a change of forum or a new forum; that there are no existing rights conferred by any written law which are affected in any way; that in any case a purposive interpretation warrants a retrospective application of CIPAA."
The High Court then concluded by ultimately stating at paragraphs 225 that:
"[225] It is therefore the conclusion of this court that it is the clear intention of Parliament that CIPAA applies to all construction contracts regardless of when those construction contracts were made; and that would extend to the payment disputes that arise under those construction contracts. The Act applies so long as the construction contracts are made in writing and that such construction contracts are carried out either wholly or partly within the territory of Malaysia. The only exception to this are those payment disputes where proceedings in relation to such disputes have already been commenced either by way of court proceedings or arbitration before the operation of the Act, that is, before 15 April 2014."
In summation, the High Court in UDA Holdings was of the firm view that that CIPAA being purely a procedural piece of social legislation is to be applied prospectively.
It is pertinent to note that the decision of the High Court in UDA Holdings was upheld by the Court of Appeal. The Court of Appeal did not however provide any written grounds of judgment for its decision. For a significant period, the decision of the High Court in UDA Holdings has been treated very much as the seminal decision of the courts in Malaysia vis-à-vis the retrospective application of CIPAA. Commentators have however been split in their views as to whether the decision of the courts in Malaysia that CIPAA is to have retrospective effect is the correct one.
VIEW ESTEEM
Thereafter, the next decision of note, arising from the courts in Malaysia pertaining to application of CIPAA was that of the Federal Court in View Esteem. The decision in View Esteem is discussed in the context of this article given that it was relied on by the parties asserting that CIPAA has retrospective effect in both Ireka Engineering and Jack-in Pile, which will be discussed in detail below.
On a careful reading of the decision in View Esteem, it is to be noted that the Federal Court was concerned with the following eight questions of law6:
- Whether a jurisdictional challenge as to the application of the Construction Industry Payment and Adjudication Act 2012 ('CIPAA') can be made any time by way of application or whether such an application can only be made upon the application to set aside an adjudication award under section 15 of the CIPAA?
- Whether section 41 of the CIPAA operates to exclude any proceedings from the operation of the CIPAA if the whole or any part of such a claim has been brought to court or arbitration prior to the coming into force of the CIPAA?
- Whether section 6(4) of the CIPAA allows a responding party to raise matters not raised in payment response under section 6(2) of the CIPAA during the filing of the adjudication response under section 10(1) of the CIPAA?
- If the answer to question (3) above is in the affirmative, whether the exclusion of a defence that has not been raised in the payment response under section 6(4) but raised under section10(1) of the CIPAA amounts to a denial of natural justice under section 15 of the CIPAA?
- Whether the adjudicator has the power under section 26 of the CIPAA to remedy any noncompliance with section 6(2) of the CIPAA?
- If the answer to question (5) is in the affirmative, whether the exclusion of a defence that has not been raised in the payment response under section 6(4) but raised under section 10(1) of the CIPAA amounts to a denial of natural justice under section 15 of the CIPAA?
- Whether an application for stay or partial stay on terms under section 16 of the CIPAA can be granted to remedy an injustice caused by a breach of natural justice or errors arising in an adjudication award? and
- Whether an application for a stay under section 16 of the CIPAA can be made concurrently with an application to set aside an award under section 15 of the CIPAA or whether an application for a stay under section 16 of the CIPAA can only be made after an application to set aside an award under section 15 of the CIPAA is made.
None of these eight questions of law for determination before the Federal Court concerned whether CIPAA was to have retrospective or prospective effect. It is only in paragraphs 9 and 10 of the judgment of the Federal Court, did the Federal Court in passing refer to the findings of the High Court in UDA Holdings by stating the following
"[9] The application of s 41 of the CIPAA had been earlier considered and decided by the High Court in the case of UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499; [2015] 5 CLJ 527 which held that the CIPAA as a new act applied retrospectively. The High Court held that the CIPAA applies to construction contracts entered into before the coming into force of the CIPAA and also to payment disputes that arose before the enforcement of the CIPAA.
[10] It is significant to note that in the case of UDA Holdings Bhd the KLRCA as the body designated by the CIPAA as 'the adjudication authority' (see s 32) had itself propounded that this new Act should apply only to payment disputes that arise after the CIPAA has come into force. The High Court in UDA Holdings Bhd held that CIPAA has a full retrospective effect to cover both construction contracts and payment disputes that arose before CIPAA came into force. In the result, it would appear that s 41 of the CIPAA is not only a 'saving provision' but also a 'transitional provision' as the CIPAA has been declared by case law to apply retrospectively to pre-existing payment disputes."
It is imperative to note that the Federal Court did not expressly decide on the correctness of the decision in UDA Holdings. The issue of whether CIPAA is to apply retrospectively or prospectively was therefore not an issue that was properly considered in detail by the Federal Court in View Esteem. This view has been endorsed by the Federal Court in the subsequent decisions in Ireka Engineering and Jack-in Pile.
It should be noted that the decision of the Federal Court in View Esteem is presently the subject matter of challenge by way of the following separate appeals which are all fixed for hearing in April 20207 :
- Federal Court Civil Appeal No. 02(f)-38-05/2018(W) & 02(f)-39-05/2018(W) Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd
- Federal Court Civil Appeal No. 02(f)-120-12/2018(B) & 02(f)-121-12/2018(B) Sycal Bhd v Guangxi Dev & Cap Sdn Bhd
- Federal Court Civil Appeal No. 02(f)-128-12/2018(W) & 02(f)-129-12/2018(W) PCP Construction Sdn Bhd v Leap Modulation Sdn Bhd
These three appeals are not concerned with the retrospective or prospective effect of CIPAA but rather the procedural aspects relating to the conduct of an adjudication by reference to right of parties to raise a right of set-off, introduce a counterclaim and/or any other issue not previously contained in the "payment response" but rather in the "adjudication response" pursuant to Section 10 of CIPAA. The ancillary issues of law pertaining to denial of justice and the notion of excess of jurisdiction on the part of an adjudicator are also being ventilated in these three pending appeals.
IREKA ENGINEERING
The Ireka Engineering decision involved different construction contracts on different projects but with the same parties which were entered into before CIPAA came into effect. Each of the construction contracts had a clause which gave a right to the appellant to set-off any money due to the respondent with any sum the respondent is liable to pay in any of the construction contracts entered between the parties.
During the various adjudication proceedings initiated by the respondent, the adjudicator had amongst others, relied on section 5 of the CIPAA and declined to exercise jurisdiction over disputes arising out of different contracts which were being dealt with by different adjudicators. The rationale behind this appears to be that the adjudicator was only able to make determination on a single construction contract and that the adjudicator was not empowered to decide on multiple construction contracts pursuant to section 5 of the CIPAA.
In this respect, the Federal Court noted that by 'limiting the application of the CIPAA to a single construction contract, the Court of Appeal and the High Court had clearly and unarguably denied the appellant its right to rely on an express term of clause 13.1 of the agreement which allows a claim based on multiple construction contracts. Subsection 5(1) of the CIPAA, in particular the expression 'a construction contract' we apprehended, has been construed by both courts to mean a single construction contract and not multiple construction contracts'.8
The Federal Court approached these three appeals as one premised on a pure question of law with regards to the true interpretation of CIPAA. The two principal questions of law that the Federal Court concerned itself with were:
- Whether CIPAA gives rise to substantive rights and is consequently not retrospective in nature, making the adjudication decision liable to be set aside?
- Whether CIPAA which came into force on 15th April 2014 is retrospectively applicable to a subcontract that was signed and dated prior to the enforcement date, or will it render the entire adjudication proceedings, including the adjudication decision void?
In addressing these two questions of law before ultimately concluding that CIPAA gives rise to substantive legal rights and therefore ought to be applied prospectively, the Federal Court whilst acknowledging the comprehensive and lengthy nature of the judgment of the High Court in UDA Holdings, was ultimately critical of the reasoning adopted by the High Court. In particular, Mr. Justice Idrus Harun FCJ, in delivering the unanimous decision of the Federal Court made the following findings, which warrant consideration:
- At paragraph 47:
"[47] The provisions of Act 3889 referred to above are indeed a manifestation of the common law position which is statutorily embodied in the said Act. The combined effect of the above provisions plainly shows that Act 388 applies to all Acts of Parliament enacted after 18 May 1967 for the purpose of their interpretation. Accordingly, the interpretation of the CIPAA is governed by Act 388. As a general rule, a date of commencement of an act, including the CIPAA, with retrospective operation is not allowed unless it is clearly intended by Parliament and such intention is evinced in the Act by express provisions in that behalf. It is particularly noteworthy and relevant that, from a perusal of the CIPAA, we cannot find an express provision from which we can safely say that Parliament has manifestly intended that CIPAA shall operate retrospectively. That being the position, the application of section 5 of the CIPAA to the agreement in the present circumstances would exclude and impair the appellant's express right under the agreement which is the right to multiple construction contracts vis-à-vis the cross-contract set-offs. Such construction would inflict a detriment on the appellant and have the effect of altering the construction contract in particular clause 13.1 in the sense that an act allowed at the time of doing it is now forbidden by a new statute namely CIPAA. For these reasons, the express term of the agreement in clause 13.1 must prevail over any provision in the CIPAA, as this is an express term of the construction contract that was agreed upon by the parties well before the CIPAA was enacted by Parliament."
- At paragraphs 49 to 53:
"[49] Now we must turn to the case which the respondent principally relies upon to support their position that the CIPAA operates retrospectively. This is the case of UDA Holdings Bhd, supra. We would mention that what has emerged from the submission of the respondent's counsel is that their position as summarised in the salient points of his argument earlier in our judgment relies to a large extent on the decision in UDA Holdings Bhd. What comes sharply into focus is the High Court's decision there at page 576 that the CIPAA was retrospective in effect. In coming to its decision, the High Court (and the Court of Appeal subsequently) in UDA Holdings Bhd, in a comprehensive albeit lengthy judgment, had 33 commendably considered several provisions and the objective of the CIPAA and reviewed a catenation of relevant authorities to show that the CIPAA was retrospective in its operation. However, the High Court had failed to and did not appear to appreciate fully the statutory provisions of Act 388 and the common law position that absent clear and express words to such effect, the CIPAA cannot be applied retrospectively. It is necessary to note that the Court of Appeal in dismissing the appeal in UDA Holdings Bhd did not provide grounds of judgment for its decision.
[50] By way of emphasis, we would say with respect that there are errors in the High Court's interpretation of the CIPAA in UDA Holdings Bhd. To highlight such errors, we would start off by giving our focus on Parliament's intention in enacting the CIPAA. The High Court's findings on this point can be summarised as follows: (a) the CIPAA was enacted to ease cash flow problems in the construction industry by facilitating regular and timely payment, providing speedy dispute resolution through adjudication which is also about payment or to provide remedies for the recovery of payment in the construction; (b) the objective of CIPAA was to offer a simple, fast and cheap mechanism for resolving payment problems and payment disputes faced in the construction industry as opposed to the existing dispute resolution through arbitration or the courts; and (c) the CIPAA was intended to remedy an existing problem in the construction industry.
[51] From the above, the third finding made by the High Court in examining Parliament's intention that the CIPAA was intended to remedy 34 an existing problem is important. This problem relates to the problem over payments experienced by the construction industry which is either there is non-payment, late payment or insufficient payment. In fact, the High Court in UDA Holdings Bhd deliberated at length over the parliamentary debates on the Construction Industry Payment and Adjudication Bill when it referred to paragraphs [92], [95], [98] and [100] of the said Hansard of Parliament. The fact that Hansard of Parliament referred to by the High Court in UDA Holdings Bhd contains the said revelation on the existing problem in question in the Deputy Minister's speech at the second reading of the Bill to introduce the CIPAA both at Dewan Rakyat and Dewan Negara, clearly highlights that Parliament was already aware of the problem facing the construction industry. Notwithstanding the same, we find that Parliament in its wisdom elected, and in fact did not find it necessary to insert a provision that the CIPAA was to be applied retrospectively in order to cover the existing problem in the industry.
[52] Thus, in the absence of any such provision, it is apparent that Parliament has not evinced any intention that the CIPAA is to be applied retrospectively. Whilst part of the reason the CIPAA is enacted is to remedy an existing problem, which the law-making body is aware of, Parliament is silent on whether such a remedy was to be applied retrospectively. If Parliament had intended for the CIPAA to be applied retrospectively, given its full awareness of the existing problem, it would have expressly included a provision to that effect. Parliament does not though, and instead in accordance with subsection 1(2) of the CIPAA, it came into operation on 15.4.2014 without express provision to the effect that the CIPAA shall come into operation on a date prior to the date on which the instrument of appointment is published which is 15.4.2014 as 35 required under subsection 43(a) of Act 388 or shall apply to construction contracts entered into on or before its commencement date.
[53] Notwithstanding the above, the High Court in UDA Holdings Sdn Bhd had inexplicably concluded that it was the undoubted intention of Parliament that the CIPAA was to be applied retrospectively and that it applied to all construction contracts regardless of the dates those construction contracts were made as well as the payment disputes that arose under those construction contracts. In our judgment, the reasons we have discussed above expose the fallacy and demonstrate the relative weakness of the cogency of the finding made by the High Court in UDA Holdings Bhd as well as the argument urged on behalf of the respondent. Neither the CIPAA nor Hansard of Parliament expressly provide that it is to be applied retrospectively. We accept that the intention of Parliament is to provide a speedy resolution to payment disputes in the construction industry. However, such intention without more does not in any way lead to the conclusion that Parliament had intended for the CIPAA to be applied retrospectively."
- At paragraphs 55 and 56:
"[55] We find no difficulty in accepting that the High Court in UDA Holdings Bhd correctly noted that in other jurisdictions, the statutory adjudication regimes specifically stated that it was to be applied to construction contracts made after these Acts had come into force. However, the conclusion reached by the High Court in paragraph [149] and the submission of the respondent's counsel on this point involved with respect, a fallacious reasoning in which such conclusion had undoubtedly been assumed from the above argument which was not supported by clear evidence. The fact that Parliament could have inserted similar 37 provisions on the applicability of the CIPAA but had chosen not to do so, does not, in itself lead to clear and unavoidable interpretation that the CIPAA operates retrospectively. Furthermore, such conclusion by the High Court is essentially circular. One may similarly argue that if Parliament has intended the CIPAA to be applied retrospectively, Parliament could have inserted such a provision. Such provision however is conspicuously absent from the CIPAA.
[56] This argument, moreover, cannot be upheld for the simple reason that the commencement point of the CIPAA is 15.4.2014 which is prescribed by the Minister in accordance with subsection 1(2) thereof and subsection 19(1) of Act 388. Learned counsel for the respondent does not seem to realise that by virtue of subsection 19(1) and subsection 43(a) of Act 388, the commencement date of operation shall be the date provided in or under the CIPAA and that the power to appoint a date on which the CIPAA shall come into operation does not include the power to appoint a date prior to the date on which the instrument of appointment is published unless there is an express provision therein which points to the effect. Therefore, the CIPAA is not silent as to its commencement date. As such, in accordance with the trite rules of statutory interpretation, absent an express provision to the contrary, it is plain that Parliament had intended that statutory adjudication under the CIPAA should apply prospectively. The ministerial prescription as aforementioned clearly shows that the prospective operation of the CIPAA began on 15.4.2014. It necessarily follows that any construction contract entered into before the commencement of the CIPAA and any payment dispute arising out of such construction contracts are not governed by the CIPAA. Needless to say, it is not for the courts to infer Parliament's intention when, upon 38 careful scrutiny of the wording of the CIPAA to glean legislative intention therefrom, no such intention is evidenced."
- At paragraph 59:
"[59] The CIPAA is not merely about a change of forum. It is entirely a new piece of legislation. This is acknowledged by the High Court in UDA Holdings Bhd itself when it rightly pointed out at paragraph [193] that "over and above all the other considerations discussed, CIPAA is entirely new legislation". There can be no doubt that the introduction of the CIPAA gives parties a third option or avenue for parties to take legal action, which is to refer their dispute to adjudication. Before the CIPAA was enacted, in the event there was a dispute, the parties to a construction contract had two options open to them which are to litigate or arbitrate. The CIPAA is not a plain manifestation of a change of forum only, neither is it merely procedural in nature. There are provisions in the CIPAA which affect the substantive rights of parties. To illustrate our point, besides section 5 of the CIPAA, section 35 can be identified as another provision which deals with substantive rights. Section 35 of the CIPAA prohibits any conditional payment arrangements or provisions in construction contracts. As noted by the High Court in UDA Holdings Bhd in paragraph [86], section 35 prohibits any conditional payment provisions in construction contracts and such provisions are void."
- At paragraphs 62:
"[62] Besides, we agree with the Court of Appeal's decision in Bauer (Malaysia) Sdn Bhd that with the advent of the CIPAA, the claimants in the construction industry now have an additional avenue, a new regime or an additional alternative access to existing dispute resolution forums to claim for their contractual fees. This new avenue of access to justice is in anyone's view a substantive right. At paragraph 29 of the judgment, the Court of Appeal is fully aware that within the CIPAA there exists a procedural regime dictating as to how claims are to be processed before the adjudicator. The procedural regime created by the CIPAA is nothing but the by-product or the consequence of the substantive right created by the CIPAA. Thus, adopting the Court of Appeal's approach in Bauer (Malaysia) Sdn Bhd on this point, it would be correct for this Court to hold that sections 28 to 30 being part of this regime are in actuality the extension of the substantive rights created by the CIPAA. Consequently, the CIPAA is not merely concerned with a change of forum. It cannot be denied that the CIPAA impacts parties to a construction contract significantly. The entire basis has changed. The financial structures used previously are now prohibited and the entitlement to exercise the right of 42 crosscontract set-offs and pay-when-paid contractual arrangement even though provided for in the construction contracts are now prohibited."
- At paragraphs 68 and 69:
"[68] It is necessary to stress that we have been very careful in perusing through the judgment in UDA Holdings Bhd, but upon reading it one thing is very clear to us, that is that, the High Court is of the view that adjectival or procedural law operates retrospectively, the change of forum is a change of adjectival or procedural law and not a change of a substantive law and since the CIPAA is a procedural legislation, it is to be applied retrospectively. With respect, this is not an accurate legal position in this country neither is it a correct approach in construing whether an Act of Parliament is retrospective or prospective. It is important to highlight on this aspect that whether a statute has a retrospective effect cannot in all cases safely be decided by classifying the statute as procedural or substantive.
[69] We consider that the correct and proper approach to the construction of a statute in order to determine whether a statute is retrospective in its effect is expounded by the Privy Council in Yew Bon Tew & Anor at page 5 to the following effect: 46
"Apart from the provisions of the Interpretation Statutes, there is at common law a prima facie rule of construction that a statute should not be interpreted retrospectively so as to impair an existing right or obligation unless that result is unavoidable on the language used. A statute is retrospective if it takes away or impairs a vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability, said to be an exception in the case of a statute which is purely procedural, because no person has a vested right in any particular course of procedure, but only a right to prosecute or defend a suit according to the rules for the conduct of an action for the time being prescribed.
But these expressions "retrospective" and "procedural", though useful in a particular context, are equivocal and therefore can be misleading. A statute which is retrospective in relation to one aspect of a case (e.g. because it applies to a pre-statute cause of action) may at the same time be prospective in relation to another aspect of the same case (e.g. because it applies only to the post-statute commencement of proceedings to enforce that cause of action); and an Act which is procedural in one sense may in particular circumstances do far more that regulate the course of proceedings, because it may, on one interpretation, revive or destroy the cause of action itself.
Whether a statute is to be construed in a retrospective sense, and if so to what extent, depends on the intention of the legislature as expressed in the wording of the statute, having regard to the normal canons of construction and to the relevant provisions of any interpretation statute.
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Their Lordships consider that the proper approach to the construction of the Act of 1974 is not to decide what label to apply to it, procedural or otherwise but to 47 see whether the statute, if applied retrospectively to a particular type of case, would impair existing rights and obligations". [our emphasis]"
- At paragraphs 80 to 82:
"[80] Turning now to section 41, in our view, the savings provisions in section 41 of the CIPAA, does not and cannot amount to an express statement by Parliament for the CIPAA to apply retrospectively. With due respect to learned counsel for the respondent, the interpretation ascribed to section 41, as it is clear to us, is completely fallacious. On a plain reading of section 41 of the CIPAA, there is no real doubt that all that is provided is that litigation and arbitration proceedings commenced prior to 15.4.2014 are not impacted by the introduction of the CIPAA. The operation of section 41 is only confined to and restricted to litigation and arbitration proceedings commenced prior to the commencement date of the CIPAA. It cannot be construed to mean, as the learned judge had done in UDA Holdings Bhd, that since construction contracts entered into before the commencement of the CIPAA are not included in sections 3 and 41 and in view of the generality of section 2, it follows that the CIPAA applies to them. Such interpretation is, in our view, somewhat bizarre and bordering on absurdity.
[81] We need only say on this aspect that if the legislative intention is for the CIPAA to have a retrospective effect, Parliament would have included express provisions to that effect instead of providing for limiting provisions in sections 3 and 41 and the general provision of section 2 and leaving it to the court to imply or infer from these provisions that the CIPAA consequently applies retrospectively to all construction contracts entered into before the CIPAA was enacted. Accordingly, we cannot accept the conclusion reached by the High Court in UDA Holdings Bhd and the 57 respondent's position that the CIPAA, in view of sections 2, 3, and 41, operates retrospectively, as it was posited on the false premise that the generality of section 2, the exclusion provision of section 3 and the savings provisions in section 41 as the only limiting provisions have put to rest the argument that the CIPAA is prospective in its operation. The plain fact is, there are no clear and express words in the CIPAA providing for its retrospective operation. This Court must give effect to every word used in a statute and determine the meaning which emanates from it since there is a presumption that Parliament does not legislate and in fact does nothing in vain. As earlier stated, Parliament has fully appraised the problems by the construction industry and is fully aware of the mischief the CIPAA seeks to overcome, yet it has elected not to include a clear and express provision that the CIPAA is to be applied retrospectively.
[82] We would further add that the High Court in UDA Holdings Bhd did not fully appreciate the impact on the parties when they have acted on their vested rights in the context of section 41 of the CIPAA. The issue in these appeals concerns section 5 of the CIPAA which takes away the rights of the appellant for the cross-contract set-offs under clause 13.1 of the agreement. It would cause gross injustice and unfairness if the CIPAA and in particular sections 5 and 35 thereof could be applied retrospectively when the parties had not only agreed to those terms as stipulated in clause 13.1 of the agreement herein or 11.1 of the agreement in Bauer (Malaysia) Sdn Bhd but had during the course of the contract applied the same and had not disputed the application of this contractual provision."
- At paragraph 91:
"[91] The last remaining point concerns the respondent's argument that a construction that will promote the purpose underlying the CIPAA shall be preferred to justify the retrospective application of the CIPAA. The principle of purposive interpretation of statute is provided in section 17A of Act 388. The High Court in UDA Holdings Bhd at paragraphs [220] to [225] relied on section 17A of Act 388 and referred to the Federal Court case of Andrew Lee Siew Ling v United Overseas Bank (M) Bhd [2013] 1 MLJ 449 to advance the argument that the CIPAA is retrospective in its 64 operation. There is no doubt that the object and purpose of the CIPAA is expressly stated in the long title thereof. However, such purposive approach in our judgment in no way diminishes the general presumption of prospectivity of a statute. It ought to be emphasised that the only issue in this case is whether the CIPAA is to have a retrospective application. Therefore, section 17A of Act 388 must be read subject to the said general presumption and sections 19(1) and 43 of Act 388 which require clear and express intention to apply the CIPAA retrospectively. In any event, we would say that it is incorrect for the purposive approach to be applied in this case as the underlying purpose of the CIPAA, as correctly found by the High Court in UDA Holdings Bhd, is sufficiently plain, unambiguous, and not disputed in these appeals. The duty of the court, and indeed its only duty, is to expound the language of the Act in accordance with the settled rules of construction. To put it in another way, such construction is limited to the words used by the legislature and to give effect to the words used by it (see Vacher & Sons Ltd v London Society of Compositors [1913] AC 117-18; Sri Bangunan Sdn Bhd v Majlis Perbandaran Pulau Pinang [2007] 2 MLRA 187]. Regard to the purpose of an Act of Parliament under section 17A of Act 388 shall only be had when the meaning of a statutory provision is not plain (Andrew Lee Siew Ling, supra). We would in this regard reiterate our finding that there is no clear and express provision that the CIPAA operates retrospectively. The respondent's argument on this point is obviously otiose and untenable."
The Federal Court went on further to hold that one could not rely on the decision of the Federal Court in View Esteem as expressly endorsing or expressly approving the judgment of the High Court in UDA Holdings10.
In conclusion, the Federal Court in allowing the appeals filed by Ireka Engineering & Construction Sdn Bhd ultimately held at paragraph 92 of its judgment that the answer to the following question of law is as follows:
"Q: Whether CIPAA gives rise to substantive rights and is consequently not retrospective in nature, making the adjudication decision liable to be set-aside?
A: Yes. CIPAA gives rise to substantive rights and is consequently not retrospective in nature."
In summation, the critical points to take away from the decision of the Federal Court in Ireka Engineering are, inter-alia, that:11
- Section 5 of the CIPAA which takes away the substantive rights of parties cannot be applied retrospectively, in the absence of a plain legislative intention of the same expressed with clarity of language therein;
- From a perusal of the CIPAA, there is no express provision to safely find that the Parliament had manifestly intended that the CIPAA shall operate retrospectively. If Parliament had intended for the CIPAA to be applied retrospectively, given its full awareness of the existing problem, it would have expressly included a provision to that effect;
- The High Court had failed to and did not appear to appreciate fully the statutory provisions and the common law position that absent clear and express words to such effect, the CIPAA cannot be applied retrospectively;
- It is apparent where the parties have acted on their contractual rights in respect of a particular clause such as the cross-contract set-offs, sections 35 and 5 of the CIPAA should not have retrospective effect on the contract between the parties in order to interfere with those contractual rights which have already been vested and exercised;
- Any interpretation that the statute operates retrospectively would prejudicially affect vested rights or the legality of the transaction;
- Give that the CIPAA impacts parties' substantive rights, a retrospective application of the CIPAA would have the effect of interfering with the basic principle of freedom of contract;
- A holistic interpretation and construction ought to be given and since there are various provisions in the CIPAA that affects parties' substantial rights, it must be that the CIPAA in its entirety should have prospective application only. It cannot be the case that some parts of the CIPAA have retrospective application whereas the other parts are held to have prospective application; and
- Consequently, CIPAA as a whole ought to be applied prospectively.
JACK-IN PILE
The Jack-in Pile12 case was heard with the Ireka Engineering case by the same panel of judges of the Federal Court. As in Ireka Engineering, Mr. Justice Idrus Harun FCJ delivered the unanimous decision of the Federal Court in Jack-in Pile.
The Jack-in Pile case was concerning Section 35 of the CIPAA which provided that any conditional payment provision in a construction contract in relation to payment is void and it is a conditional payment provision when the obligation of one party to make payment is conditional upon that party having received payment from a third party. As in the Ireka Engineering case, the construction contract in the Jack-In Pile case was entered into before CIPAA came into force.
Adopting the position in Ireka Engineering in its entirety, the Federal Court concluded that the CIPAA ought to be applied prospectively as the provisions of the CIPAA undoubtedly affect the substantive rights of parties and such rights ought not to be violated as it is of fundamental importance to the respondent besides being an essential component of the rule of law. The dicta and reasoning of the Federal Court in Jack-in Pile is a substantial re-iteration of the grounds of judgment of the Federal Court in Ireka Engineering save for the factual findings of the Federal Court in ultimately dismissing the appeal.
Therefore, as at 16th October 2019, the position in law in Malaysia, arising from the decisions in Ireka Engineering and Jack-in Pile is that CIPAA is to be applied prospectively and is not applicable to constructions contracts that were entered into before CIPAA came into force on 15th April 2014.
Whilst the decisions of the Federal Court in Ireka Engineering and Jack-in Pile provide much needed clarity to the construction industry, there are still unanswered questions that need to be addressed. Of concern is (i) the position of adjudication claims that have been decided including any appeals to the courts in Malaysia from 2014 to 16th October 2019 in respect of which monies have been paid out and (ii) the position of pending adjudication claims in respect of which there are pending setting-aside or enforcement applications before the High Court, Court of Appeal and even Federal Court.
These are perhaps issues that are to be addressed by way of subsequent decisions of the Federal Court. In the interim, it may be argued that guidance may be obtained from the judicial approach of the Federal Court by reference to the decision in Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 5 MLJ 1, where the Federal Court changed the standard of proof for fraud in civil cases from 'reasonable doubt' to 'balance of probabilities'. In Sinnaiyah, Jeffrey Tan FCJ explained that the change in standard of proof for fraud in civil cases will only be applicable to 'future cases' in the following manner13:
"However, we should make it clear that this judgment only applies to this appeal and to future cases and should not be utilized to set aside or review past decisions involving fraud in civil claims."
In a subsequent Federal Court decision in Letchumanan Chettiar Alagappan @ L. Allagappan & Anor v Secure Plantation Sdn Bhd [2017] 4 MLJ 697, Jeffrey Tan FCJ (had the opportunity to further elaborate on His Lordship's earlier dicta in Sinnaiyah, when His Lordship held as follows:14
"[89] ...The Court merely underscored the retrospective and prospective effect of its decision, to apply to that appeal and to future cases, to cases as yet not filed and trials or appeals which have yet to be finally determined, but not to past cases which have reached a terminal end. The ruling in Sinnaiyah was not in the prospective only form. Sinnaiyah applies to all cases that have not been finally determined, including all pending appeals, except that in the instant appeal, it does not matter."
Thereafter, in Ling Peek Hoe & Anor v Ding Siew Ching and another appeal [2017] 5 MLJ 385, the Federal Court held that 'prospective overruling' of law by an apex court applies to cases arising in future only and it does not affect cases that have attained finality i.e. those cases that have already exhausted their appeal process within the court system.
The above Federal Court decisions were once again cited with approval and followed in a recent Federal Court decision called Veheng Global Trades Sdn Bhd v AmGeneral Insurance Bhd (formerly known as Kurnia Insurance (M) Bhd & Anor and another appeal [2019] 4 MLJ 581.
It may therefore be open for parties to assert in the interim that the abovementioned Federal Court decisions can be relied upon for purposes of:
- interpreting the Ireka Engineering and Jack-in Pile decisions as applying equally to all pending adjudication cases and all pending appeals that have not been finally or fully determined;
- enabling non-paying party to render the adjudication proceedings as being void in cases where the construction contracts have been entered into before CIPAA came into force. Such an argument appears to be available to the relevant parties irrespective of whether the non-paying party previously raised this as a ground to challenge the jurisdiction of the adjudicator in the adjudication proceedings itself;
- enabling parties to rely on the decisions in Ireka Engineering and Jack-in Pile vis-à-vis all pending adjudication cases before the High Court, Court of Appeal and the Federal Court; and
- enabling parties to contend that adjudication cases which had been fully determined and in respect of which all appeal processes had been exhausted prior to the decisions in Ireka Engineering and Jack-in Pile, are not affected in any way.
In response to the decisions of the Federal Court in Ireka Engineering and Jack-in Pile, the Asian International Arbitration Centre ("AIAC"), which administers all adjudication claims under CIPAA has taken active steps as of 24th October 2019 to ensure that the centre will not be registering payment disputes arising from construction contracts executed prior to 15th April 2014 in the light of the decision in Ireka Engineering and Jack-in Pile. 15 It remains to be seen how the AIAC will in practice elect to administer or address adjudication claims that are presently on-going where the contracts were executed prior to 15th April 2014.
Ultimately, for purposes of clarity, it would perhaps be opportune for the Federal Court to perhaps address these ancillary but important issues by way of a subsequent decision to ensure that there is absolute clarity arising from the recent decisions in Ireka Engineering and Jack-in Pile. Alternatively, it remains open for Parliament to introduce the appropriate legislative amendments to CIPAA to remedy some of the omissions or lacunas within this relatively new piece of legislation.
The decisions in Ireka Engineering and Jack-in Pile are very much welcomed decisions and provide significant jurisprudential value vis-à-vis the approach to be adopted in the adjudication of construction claim. There is still however, much to be done to improve the legislative framework and adjudication process generally in Malaysia
It is envisaged that there will be more to come in terms of judicial pronouncements of the apex court in Malaysia in so far as the adjudication of constructions claims are concerned and how CIPAA is to be properly construed and ultimately applied.
Footnotes
1. At the outset, disclosure is made that the authors of this article are from the same law firm, i.e. Messrs Cecil Abraham & Partners, as lead counsel and junior counsel for Ireka Engineering & Construction Sdn Bhd, namely, Tan Sri Dato' Cecil Abraham and Mr. Aniz Ahmad Amirudin in above-mentioned appeals that were before the Federal Court.
2. By way of Federal Court Civil Appeal No. 02(f)-124-12/2018, Federal Court Civil Appeal No. 02(f)-125-12/2018(W) as well as Federal Court Civil Appeal No. 02(f)-126-12/2018(W).
3. By way of Federal Court Civil Appeal No. 02(f)-58-07/2018(B) and Federal Court Civil Appeal No. 02(f)-59-07/2018(B).
4. See UDA Holdings Bhd v Bisraya Constructions Sdn Bhd & Anor and another case [2015] 11 MLJ 499 at paragraphs 73 to 93.
5. See UDA Holdings Bhd v Bisraya Constructions Sdn Bhd & Anor and another case [2015] 11 MLJ 499 at paragraphs 95 to 100.
6. See View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 at paragraph 5.
7. Further disclosure is made that the authors of this article are from the same law firm, i.e. Messrs Cecil Abraham & Partners, as lead counsel and junior counsel for PCP Construction Sdn Bhd, namely, Tan Sri Dato' Cecil Abraham and Mr. Aniz Ahmad Amirudin in a pending appeal before the Federal Court.
8. See paragraph 39 of the Federal Court's judgment in Ireka Engineering at http://ejudgment.kehakiman.gov.my/ks_builtin/file_dispatcher_pub.php?id=7820&key=d7dc4170212e345a75ec0d422a1e552c.
9. The Interpretation Acts 1948 and 1967.
10. See paragraphs 74 to 76 in of the Federal Court's judgment in Ireka Engineering at http://ejudgment.kehakiman.gov.my/ks_builtin/file_dispatcher_pub.php?id=7820&key=d7dc4170212e345a75ec0d422a1e552c.
11. 1 See paragraphs 42, 43, 47, 49, 50, 52, 82, 85, 89, 90, 92 of the Federal Court's Judgment in Ireka Engineering at http://ejudgment.kehakiman.gov.my/ks_builtin/file_dispatcher_pub.php?id=7820&key=d7dc4170212e345a75ec0d422a1e552c.
13. At paragraph 54 of the report.
14. At page 763 of the report.
15. Announcement dated 24.10.2019 at https://www.aiac.world/news/283/PROSPECTIVE-APPLICATION-OF-THECONSTRUCTION-INDUSTRY-PAYMENT-AND-ADJUDICATION-ACT-2012
Originally published April 2020
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