Case Commentary by VCC: JKP Sdn Bhd and Anas Construction Sdn Bhd

Section 5(2)(b) of the Construction Industry Payment & Adjudication Act 2012 (“CIPAA”) provides that the payment claim shall include “Details to identify the cause of action including the provision in the construction contract to which the payment relates”.

In JKP Sdn Bhd v Anas Construction Sdn Bhd and another appeal [2022] MLJU 2124 (“Anas Construction”), the claimant failed to cite the correct clause in the Contract to its claim in both its payment claim and adjudication claim. Anas Construction Sdn Bhd (“Anas”) based its claim by making specific pleas in regard to Clauses 28, 55 and 56 of the Contract. On the other hand, JKP Sdn Bhd (“JKP”) in its Adjudication Response contended that the relevant clause in the Contract was that of Clause 36.5 and highlighted that the Anas did not invoke these provisions.

[For reference Clause 36.5 of the Contract provides that the cost of making any test shall be borne by the contractor if such test is: (a) Proposed by the contractor, or (b) clearly intended by or provided for in the contract. On the other hand, Clause 28 provides for the payment to the contract interim certificates, Clause 55 provides for the events and consequences of default by JKP, and Clause 56 provides for the certificate of termination costs.]

The adjudicator, however, made its adjudication decision in favour of Anas. The adjudicator agreed that Anas’ claim pursuant to Clauses 28, 55 and 56 is not sustainable. Nevertheless, the adjudicator allowed Anas’ claim based on Clause 36.6 of the Contract as it was applicable to Anas’ claim.

JKP applied to set aside the adjudication decision. The High Court Judge agreed with the adjudicator’s decision.

Finding by the Court of Appeal

In allowing the appeal, the Court of Appeal held that the adjudicator acted out of its jurisdiction and that the High Court’s decision to dismiss the setting aside application was plainly wrong therefore warranting appellate intervention. In making this finding the Court of Appeal determined on two issues. Firstly, whether the adjudicator had acted in excess of his jurisdiction; and secondly, whether there was a denial of natural justice. We will discuss these in turn.

(i) Whether the Adjudicator had acted in excess of his Jurisdiction

The Court of Appeal held that the failure to state the clause relied upon (Clause 36.6 of the Contract) meant that the clear requirements under section 5(2) of CIPAA were not complied with. Section 5 (2) of CIPAA requires that Anas must provide details as to the cause of action including which provision in the construction contract to be relied on in its payment claim. As such, the failure of Anas to state that it was relying on Clause 36.6 in the payment claim constituted statutory non-compliance and such failure meant that the adjudicator has no jurisdiction to adjudicate on the same.

The Court of Appeal referred to the Federal Court case of View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 ML J 22, where it was held that under section 27 (1) of CIPAA, the arbitrator’s jurisdiction is limited to matters that have been referred to adjudication pursuant to sections 5 and 6 of CIPAA. It was held that:

“[56] … s 27(1) of the CIPAA refers to the subject matter of the claim under s 5 of the CIPAA, which is the ‘cause of action’ identified by the claimant by reference to the applicable clause of the construction contract. Thus, if the payment claim relates to progress claim No. 28 (as in the present case), the adjudicator’s jurisdiction is limited to this progress claim and nothing else. The payment response is likewise limited to an answer to progress claim No. 28.”

[57] It can thus be said that the appellant’s case regarding the jurisdiction referred to in s 27(1) of the CIPAA, Is the subject matter of the claim and the cause of action as that identified under the relevant provision of the construction contract…”

Further, under section 9(1) of CIPAA, it is provided that Anas ought to have served its adjudication claim containing the nature and description of the dispute and the remedy sought. Accordingly, failing to cite Clause 36.6 of the Contract in the Adjudication Claim is fatal to Anas’ case.

In this view, the Court of Appeal further cited View Esteem in that the provisions of sections 9 to 11 of CIPAA are not merely ‘formal manifestations of the dispute’ and stressed that the two-tiered process under CIPAA does not reduce the importance of adjudication pleadings.

Hence, the Court of Appeal held that the adjudicator acted in excess of its jurisdiction when he decided on matters not raised or pleaded in the payment claim and other adjudication pleadings.

(ii) Whether There Had Been a Denial of Justice

The Court of Appeal held that the adjudicator had breached the principles of natural justice by unilaterally relying on the un-pleaded Clause of 36.6 of the Contract. In support of this, the court cited section 24 of CIPAA which provides that the adjudicator shall at the time of the acceptance of appointment as an adjudicator make a declaration in writing to confirm, inter alia, that he shall comply with the principles of natural justice.

Again, the Court of Appeal made reference to the case of View Esteem which had emphasised the importance of the adjudicator in the compliance of the principles of natural justice and that the failure of the adjudicator to consider all the defences raised in the adjudication response would amount to a breach of natural justice.

In determining the issue of breach of natural justice in adjudication, the Court of Appeal cited the case of Econpile (M) Sdn Bhd v. IRDK Ventures Sdn Bhd & Another Case [2016] 5 CLJ 882 in which reference was made to the case of Cantillon Ltd v. Urvasco Ltd [2008] EWHC 282 which provided that breaches of natural justice in adjudication cases, it must be established that:

1. the adjudicator failed to apply the rules of natural justice;

2. the breaches must be material and not merely peripheral;

3. a material breach of the rules will be one where the adjudicator had failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon in the event it is decisive or of considerable importance to the outcome of the resolution of the dispute;

4. whether an issue is decisive or of considerable importance is a question of degree which must be assessed by the judge; and

5. the adjudicator goes off on a frolic of his own to decide the case on factual or legal basis not argued, without giving the parties an opportunity to comment.

In this case, the Court of Appeal held that the adjudicator did go on a frolic of his own and therefore failed to apply the rules of natural justice. Further, it was held that the adjudicator had committed material breaches of natural justice when he failed to notify the parties that he was to rely on the un-pleaded Clause 36.6 and whereby he failed to allow the parties to comment on the same.

It must also be noted that the Court of Appeal rejected Anas’ argument that the adjudicator has inquisitorial powers to do as such under section 25 (i) of CIPAA. The Court of Appeal opined that although the law bestows inquisitorial power to the adjudicator to ascertain facts and law required for his decision, this power ought not to extend to enable the adjudicator to ‘unilaterally cherry-pick a specific clause’ and make out a cause of action where the claimant of the adjudication has not relied on the same.

Commentary

Construction law practitioners in Malaysia ought to take note the gravity of having to cite the precise proviso of the construction contract when preparing the payment claim.

Whilst Anas Construction dealt specifically on section 5(2)(b) CIPAA in identifying the provision of the contract, it may very well be that failure to adhere to the other requirements under section 5(2) may render the same effect (e.g.: amount claim, description of the work or services, a statement that the payment claim is made under CIPAA).

The position taken by the High Court Judge in this case that there were sufficient material facts being pleaded which would allow the adjudicator to make a decision would have been justifiable if the subject matter in question were pleadings in litigation (see Sukatno v Lee Seng Kee [2009] 3 MLJ 306). However, the Court of Appeal took a strict and literal reading of section 5(2) CIPAA. In this case, even if material facts had been pleaded, the failure to abide by the requirements under CIPAA meant that the adjudication decision was liable to be set aside.

Furthermore, it is interesting to see further development in our jurisprudence in relation to how our courts will determine whether there is a breach of natural justice in the context of adjudication proceedings. In this regard, where the adjudicator goes on a frolic, departing from the facts and law that have been submitted before him and where he fails to notify and give parties an opportunity to comment on his reliance of an un-pleaded point, our courts are very much willing to set aside the adjudication decision on the grounds of breach of natural justice.