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Introduction
The adjudication mechanism provided under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) seeks to resolve payment issues for work done or services rendered.
What about claims for loss and expense? Can claims for loss and expense be adjudicated in CIPAA?
In Part 1 of this article, we will be looking at 2 cases where the Court had decided that an Adjudicator has the jurisdiction to decide on claims for loss and expense arising out of extensions of time and in Part 2 we will look at the case that decide otherwise.
For those uninitiated, “loss and expense” is the contractor’s claims as a consequence of delay and disruption to the planned progress of the work in the course of a construction project due to the breach of contract by the Employer.
SYARIKAT BINA DARUL AMAN BERHAD & ANOR v GOVERNMENT OF MALAYSIA [2017] MLJU 63
Background Facts
The Plaintiff was appointed by the Defendant as the contractor for the construction and completion of Trans Eastern Kedah Interland Highway, from Durian Burung to Kupang Kedah (Package A) (“Project”) in Kedah. The form of contract between the parties is the PWD 203A Standard Form of Contract (Rev 10/83) which further incorporates 6 addenda and a “Special Provisions of the Conditions of Contract” (“Contract”).
Pursuant to the contract, the Plaintiff had proceeded to perform the works. The Plaintiff was granted 5 extensions of time.
The dispute arose between the parties concerning on payment issues. In this regard, the Plaintiff had commenced the Adjudication proceeding, claiming for, inter alia, one of it including claims for loss and expense pursuant to extensions of time.
The adjudicator delivered his decision, dismissing the Plaintiff/Claimant’s entire claim with costs awarded to the Defendant/Respondent on the grounds, inter alia, that a claim for loss and expense is outside the purview of CIPAA and that he has no jurisdiction to adjudicate on the claim.
Decision of the Court
The High Court had set aside the part of the adjudication decision wherein the adjudicator had dismissed the claims in relation to the loss and expense.
It is the High Court’s observation that claims for loss and expense can be adjudicated in CIPAA for cases where:
If the contract allows loss and expense to be added to the Contract Sum (provided it arises due to the principal’s breach); or
In some cases such as the present PWD 203A Standard Form of Contract, it can be claimed under the Final Account and hence claimable as additional costs incurred for work done.
The High Court referred to the following authorities in deriving that payments pertaining to claims for loss and expense due to the delay in completion of works come within the ambit of CIPAA.
[77] The learned author Lim Chong Fong (now Justice Lim Chong Fong) in his book entitled The Malaysian PWD Form of Construction Contract, at page 111 observed as follows:
“As soon as is practicable but not later than ninety (90) days after practical completion of the Works, the Contractor shall submit full particulars of all claims for direct loss or expense under clause 44.1 together with all supporting documents, vouchers, explanations and calculations which may be necessary to enable the direct loss or expense to be ascertained by the S.O. The amount of such direct loss or expense ascertained by the S.O. shall be added to the Contract Sum.” (emphasis added)
[78] Clause 44 to the PWD 203A Standard Form of Contract signed by the parties provides as follows:
“44. Loss and Expense Caused by Delays
“If the regular progress of the Works or any part thereof has been materially affected by reason as stated under Clause 43 (c), (f) or (i) hereof (and no other), and the Contractor has incurred direct loss and/or expense for which he would not be reimbursed by a payment made under any other provision in this Contract, then the Contractor shall within one (1) month of the occurrence of such event of circumstance give notice in writing to the S.O. of his intention to claim for such direct loss or expense together with an estimate of the amount of such loss and/or expense, subject always to Clause 48 hereof.” (emphasis added)
[79] Finally Clause 48(a) of the PWD 203A Standard Form of Contract provides as follows:
“So soon as is practicable but not later than three (3) months after practical completion of the Works, the Contractor shall submit full particulars of all claims made by him under Clause 5(d) and/or 44 together with any documents, supporting vouchers and any explanation and calculations including documents relating to the accounts of Nominated Sub-contractors or Nominated Suppliers, which may be necessary to enable the Final Account to be prepared by the S.O. provided always the Contractor had given the notice of claim in writing within the stipulated time or times in the said provisions.”
[80] The learned authors Lam Wai Loon and Ivan Y F Loo of Construction Adjudication in Malaysia, CCH a Wolters Kluwer Business, drew support for the proposition that a claim for losses incurred as a result of extension of time is claimable under a Payment Claim from the New Zealand Court of Appeal decision in George Developments Ltd v Canam Construction Ltd [2006]1 NZLR 177, CA. It was held that so long as such an entitlement is provided for under the written contract between the parties, such a claim can be mounted. I do appreciate that under section 19 Interpretation of the New Zealand Construction Contracts Act 2002, “payment” means -
a progress payment for construction work carried out under a construction contract; or
another type of payment under construction contract to which a party who has agreed to carry out construction work under the contract is entitled for, or in relation to, construction work carried out by that party under the contract.
[81] In the New Zealand Court of Appeal case of George Developments Ltd (supra), His Lordship Robertson J said at paragraph 55 of the judgement:
“On the inclusion of extension of time costs, we adopt the New South Wales approach. The New South Wales Act is not identical to the Act (as it requires that a payment claim identify the construction work “or related goods and services” to which it relates, in contrast to s 20(2)(c) of the Act), but we do not think the difference is material in this context. Although the definition of construction work in s. 6 of the Act refers to physical work, the force and thrust of the Act cannot be limited to claims for physical work actually done as opposed to costs which inevitably arise from carrying out the work. This might include insurance costs, interest, costs of preparing a programme or an extension of time entitlement. As long as the construction contract provides for the payee to be paid the claimed amount in consideration for its performance of construction work (whether or not entitlement is contingent on a factor such as an extension of time being granted), the payee is entitled to make a claim for payment in a payment claim. If the payer’s stance is vindicated, the particular amount will not have to be paid, but that will not prejudice the entitlement of the payee to be paid the other amounts claimed in the payment claim or invalidate the payment claim as a whole.” (emphasis added)
[82] It is worth noting that the New Zealand Court of Appeal in construing the New Zealand’s Construction Contracts Act 2002, with which our CIPAA shares almost identical purpose and objectives, stated the following in the same paragraph:
“It is not necessary that every amount claimed in the payment claim can be directly linked to a physical task involved in the construction of the building or structure. The Act was specifically intended to avoid artificial distinctions. Cash flow was intended to be protected by the Act and it is to be interpreted so as to achieve its object of speeding up payments.” (emphasis added)
[83] The same position was also propounded in the book Adjudication of Construction Payment Disputes in Malaysia, LexisNexis, authored by Chow Kok Fong, Lim Chong Fong and Oon Chee Kheng, wherein it is stated that:
“[5.16] The items which are frequently tendered in a payment claim may be conveniently considered under four broad heads:
The first relates to the permanent works. This is the building, facility, structure or system which the contract intends the contractor to construct or install and hand over to the employer on completion.
The second relates to variations which are changes made to the design or the employer requirements. Variations may take the form of an addition or omission of work.
The third component is described as temporary works.
These are items of work which are undertaken to enable the permanent works to be carried out and which are intended to be dismantled and removed from the site upon completion of the works. Examples include earth shoring systems and diaphragm walls used during excavations, formwork for the casting of concrete, scaffolding used for finishing work and temporary site buildings to house site personnel and workers while the construction is in progress.
The final category consists of costs associated with expenses which are necessary for the organising and execution of the works. These items are sometimes referred to as site preliminaries and include items such as insurance, bonds, maintenance of site facilities, wages and utilities.
…
[5.30] It is clear from this quick survey of the authorities that the widest berth is accorded by the HGCRA…While the position in Australia and New Zealand are more circumscribed, the thread of judicial comments maintain quite consistently that the admissibility of a claim is determined by reference to the contract - in effect whether the contractual intention envisages that an item is claimable as part of the contract price or on some basis derived from or extrapolated from the contract price. Thus in both New South Wales and New Zealand, it is envisaged that items for site preliminaries and site overheads will be clearly claimable where the contract clearly envisages such claims being made as part of the progress payment process.
…
[5.32] In Malaysia, the expression ‘loss and expense’ typically embrace items which fall to be described as site preliminaries.
…
In these situations…it is considered that on the authorities in the United Kingdom, Australia and New Zealand they should properly form part of a payment claim.” (emphasis added)
The Court further observed that “payment” under section 4 CIPAA means “a payment for work done or services rendered under the express terms of a construction contract” and that “clauses 44 and 48(a) of the PWD 203A Standard Forms of Contract are the express terms under which the Payment Claim was made.”
SKS PAVILLION SDN BHD V TASOON INJECTION PILE SDN BHD [2019] 9 MLJ 396
Similarly, the High Court in this case had decided that loss and expense is within the scope of CIPAA 2012.
Background Facts
The Defendant had initiated an adjudication proceeding under CIPAA against the Plaintiff pursuant to the Letter of Award dated 29 April 2014 and the Agreement and Conditions of Building Contract (Private Edition with Quantities) Ed 2006.
The Plaintiff filed an application under s15(b) and (d) of the CIPAA 2012 and O92 r4 of the Rules of Court 2012 to set aside the adjudication decision dated 28.8.2017 and the corrective award dated 4.9.2017 on several grounds, inter alia, whether the adjudicator did not have jurisdiction as the defendant’s claims were for loss and expense for delays and variations?
The Plaintiff contends that the Adjudicator has acted in excess of his jurisdiction. One of the grounds raised by the Plaintiff in supporting its contentions is, among others, that CIPAA 2012 is limited to payment for work done under the express terms of construction contract, hence the Defendant's claim for loss and expense for delay is not within the scope of CIPAA 2012. That being the case, the Plaintiff contends that the claim is outside the adjudicator's jurisdiction.
Decision of the Court
The High Court drew support from the case of Syarikat Bina Darul Aman Berhad & Anor v Government of Malaysia [2017] MLJU 63, allowing the Plaintiff’s application and held that the law clearly empowered the adjudicator to determine the claims for loss and expense.
As the Defendant had demonstrated the entitlement for claims for loss and expense arising from delays caused by the Plaintiff pursuant to clause 23 of the contract which materially affected the Defendant pursuant to clause 24.3 of the said contract. As such, the Defendant is entitled to the claims for loss and expense pursuant to clause 24.1 of the contract.
Commenti