view esteem v bina puri- what the federal court said and what you need to do moving forward

View Esteem Sdn Bhd v

Bina Puri Holdings BhdWhat the Federal Court said

and what you need to do moving forward

1.1 What will be covered

1. Brief Facts

2. Key Areas covered by FC

A. What is the issue?

B. Why is it important?

C. What was the parties/former position?

D. What did the FC decide?

E. Key observations

F. What does it mean for you?

3. Summary

2.1 Brief Facts

1. BP made a CIPAA claim vs VE for Progress Claim No 28 and received a favorable decision.

A. Before CIPAA, BP had sued VE in Court for Interim Certificates Nos 23 to 26R

B. In CIPAA, VE raised defenses in Adj Response that was NOT raised in Payment

Response. These defenses were NOT considered by the Adjudicator.

2. Following CIPAA decision:

C. VE challenged jurisdiction of adjudicator under s.41

D. VE applied to stay and/or set aside decision under ss. 15 & 16

E. BP applied to enforce decision under s.28

3. HC dismissed VE’s applications and allowed BP’s application.

4. CA affirmed the HC.

3.1 Issues before the FC

1. Jurisdictional challenge

2. Right of Adjudicator to exclude defenses

3. Setting aside and stay issues

4.1 Jurisdictional Challenge-

what is the issue?

1. Whether a jurisdictional challenge can be made at any

time or can only be made upon application to set aside

under s.15?

2. Whether s.41 excludes CIPAA if the whole or part of any

claim has been brought to court or arbitration before

CIPAA came into force?

4.2 Jurisdictional Challenge-

why is it important?

1. If jurisdictional challenge can be made at any time, a

Respondent does not need to wait for decision before

challenging jurisdiction. Once decision is made, it adds

pressure to Respondent to pay even whilst challenge of

jurisdiction is being argued unless decision is stayed.

2. If s.41 excludes any CIPAA claim where the “whole or

part of any claim has been brought to court or arbitration”

before operation of CIPAA, this means all cases where

interim certs had been brought to court or arbitration can

no longer utilize the CIPAA process.

4.3 Jurisdictional challenge- what

was the parties/former position?

1. When can jurisdictional challenge be made?

A. BP says jurisdictional challenge can only be made AFTER adjudication

decision because s.27(3) allows Adjudicator to proceed despite jurisdictional

challenge but preserves rights of parties to set aside decision under s.15 or

resist enforcement under s.28

B. CA dismissed jurisdictional challenge because it was made in separate

application and not in an application to set aside under s.15

2. Application of s.41

C. VE says because of previous suit by BP on Interim Certs 23-26R, therefore

Progress Claim No 28 is excluded from CIPAA by reason of s.41

D. BP says Progress Claim No 28 is distinct from Interim Certs 23-26R, and

there was no pending litigation, therefore s.41 does not apply

4.4 Jurisdictional challenge-

what did the FC decide?1. S.41 says “Nothing in this Act shall affect any proceedings relating to any

payment dispute under a construction contract which had been

commenced in any court or arbitration before the coming into operation of

this Act”.

2. Because UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor says

that CIPAA applies retrospectively to construction contracts entered into

before CIPAA came into force, therefore for every such case it must be

determined whether s.41 applies to exclude CIPAA.

3. There is difference between a jurisdictional challenge that says CIPAA

does not apply, vs a challenge of “excess of jurisdiction” under s.15 (i.e.

CIPAA applies but adjudicator exceeded his jurisdiction)

4. A jurisdictional challenge saying CIPAA does not apply can be made at any

time (not only at time of setting aside under s.15)

4.4b Jurisdictional challenge-

what did the FC decide?

1. S.41 excludes CIPAA for any claims which “had been

commenced before” CIPAA comes into operation. These

claims therefore do not need to be pending.

2. As interim certs are cumulative, Claim No 28 includes

amounts certified under Interim Certs Nos 23-26R for

which BP had sued in Court, therefore is excluded from

CIPAA.


key observations1. If the jurisdictional challenge goes towards the operation of CIPAA itself, it

seems appropriate that it can be made at any time.

A. The jurisdictional challenge is not limited to application of s.41

B. It includes challenges like “no written contract”, “not a construction

contract”, “not a payment claim”, “not in Malaysia”, etc.

2. Of greater concern is the interpretation of Progress Claim No 28.

C. Every progress claim or interim certificate leads to a distinct cause of

action, therefore, despite the figures being cumulative, it ought not to

prevent a claim being mounted for that particular claim or cert.

D. However, this situation is unique to the interpretation of s.41 which is a

saving and transitional provision, therefore it is temporary only.


what does it mean for you?

1. If you are facing a CIPAA claim and you take the position

that CIPAA does not apply, make the jurisdictional

challenge in Court straight away. This relieves you from

the pressure of payment after the decision is made. If the

challenge is made in KL Construction Court, you are

likely to get a decision before the adjudicator publishes

his/her decision.

2. If you have a CIPAA claim where there was a prior

court/arbitration process for previous certs before CIPAA

came into operation, this FC decision has effectively

ended your claim.

5.1 Right of Adjudicator to exclude

defenses- what is the issue?

1. Whether Respondent can raise matters not raised in

Payment Response during Adjudication Response (i.e.

as of right)

2. Whether Adjudicator has power under s.26 CIPAA to

remedy non-compliance with s.6(2) (Payment Response)

A. If yes to either of the above questions, whether

exclusion of defense by Adjudicator is breach of

natural justice under s.15 (for setting aside)


defenses- why is it important?

1. Sometimes, either due to oversight or ignorance, a Respondent

fails to serve a Payment Response, or the Payment Response

is not complete. The law then severely limits the Respondent’s

right to raise defenses in CIPAA proceedings, because the

Payment Claim and Payment Response are akin to pleadings.

2. S.26 considers non-compliance with time limit, form and content

to be an irregularity and allows the adjudicator to make any

order he/she deems fit. But s.27 limits the jurisdiction of the

adjudicator to matters raised in the Payment Claim and

Payment Response. How is an adjudicator to exercise his

powers under s.26 to cure the lack of a Payment Response

when his jurisdiction is limited?


defenses- what was the parties/former

position?

1. The adjudicator relied on s.27 to say that because his jurisdiction was

limited to matters raised in the Payment Claim and Payment Response,

therefore defenses not raised in the Payment Response cannot be

considered.

A. The defenses that were excluded in this case were:

• advance of RM2 mil to BP;

• defective works and cost of rectification;

• encroachment into adjoining land by flyover bridge causing damage.

2. Both the HC and CA agreed.


defenses- what did the FC decide?

1. FC questioned the need for “adjudication pleadings” if only statements in Payment Claim and Payment

Response were to be considered. The 2-stage process does not warrant a reduced importance to the

adj pleadings.

2. Unlike S’pore and Australia, CIPAA does not expressly prohibit the adjudicator from considering “new”

defenses.

3. There is difference between “jurisdiction”, “powers” and “duties”:

A. “Jurisdiction” under s.27 deals with the subject matter that can be dealt with. In para [56], the FC

says “if the payment claim relates to Progress Claim No 28…the jurisdiction of the Adjudicator is

limited to this progress claim and nothing else”.

B. “Powers” under ss. 25 & 26 - Adjudicator can exercise any of his/her powers provided it relates to

his/her “jurisdiction”.

C. “Duty and obligation” under s.24- Adjudicator must comply with principles of natural justice. This

obliges him to consider all defenses raised in the Adjudication Response.

4. Conclusion: Adjudicator is not excluded from considering all defenses raised in Adj Response even if

not raised in Payment Response. Adj who wrongly rules out a defense is in breach of natural justice.


defenses - key observations

1. The FC says “jurisdiction” of the Adjudicator “is limited to this progress claim and nothing else”.

Do you think the Adjudicator has jurisdiction to deal with the following defenses?

A. RM2 mil advance to BP;

B. Defects and rectification costs;

C. Encroachment by flyover bridge and damage.

2. What is the purpose of the Payment Response now in light of the FC decision? Surely there

must be some limit to the defenses raised without a Payment Response (eg defenses that

relate directly to the Payment Claim, not issues like encroachment, delays, etc).

3. Claimant has 5 working days to file Adj Reply. If Resp waits until Adj Response to indicate his

defenses, and serves a voluminous Adj Response complete with expert reports, etc, how will

the Claimant adequately deal with this Adj Response when he has no notice beforehand?

D. Previously, the balance was overly tilted in favor of the Claimant (by curtailing s.6(4)), but

now it is overly tilted in favor of the Respondent instead.


defenses- what does it mean for you?

1. As Claimant:

A. You have 5 working days to file an Adjudication Reply, and the

defenses that can be raised in the Adjudication Response need not

be informed to you beforehand. You need to be well prepared before

launching CIPAA, and anticipate all possible defenses including

defenses not related to your particular claim.

B. Where expert reports are necessary, get them done first.

2. As Respondent:

C. Give a very general/brief Payment Response or even none at all!

You are now entitled to undertake your defense by ambush, so why

not?

6.1 Setting aside and stay

issues- what is the issue?

• Whether application for stay can be granted to remedy

injustice caused by breach of natural justice or errors

arising in adjudication decision

• Whether application for stay under s.16 can be made

concurrently with application to set aside an award

under s.15, or must be made after


issues- why is it important?

1. Adjudication was meant to be “fast” and “rough” justice, for the

purpose of easing contractors’ cashflow. It was never meant to

be perfect or even correct all the time. Consequently, the

Courts had previously determined that the only reason for a

stay of adjudication decision is if the claimant is impernicuous,

provided the claimant’s financial position is not caused by non-

payment in the first place.

2. The express words of s.16 itself provides that a stay can be

applied for if an application under s.15 to set aside has been

made OR subject matter is pending arbitration/litigation.

Therefore, if the matter is not pending arbitration/litigation, it

would seem that an application under s.15 must first be made.

6.3 Setting aside and stay issues- what

was the parties/former position?

1. The High Court held that stay can only be allowed in

exceptional circumstances, and the exceptional

circumstances must necessarily relate to “the financial

aspects of payment or repayment; as it is the whole concept

behind adjudication and payment disputes”.

A. This approach is consistent with decisions in England,

Australia and Singapore.

2. Court of Appeal adopted same approach. It said there must

be “overwhelming evidence” that the contractor would be

unable to fulfill its contractual and financial obligations

before a stay is granted.

6.4 Setting aside and stay issues-

what did the FC decide?

1. Such a stringent test not justified because s.16 is not limited. S.16 is to be

treated as one of the safeguards to a wrongful decision and empowers court

to find suitable middle ground when there are clear and unequivocal errors.

2. Other jurisdictions provide for a review/challenge procedure. Stay is only

applied for after other avenues for review/challenge are exhausted.

Therefore, it makes sense for the stringent test to be adopted for stay.

3. Stay of the award ought not be given readily and caution must be exercised

when doing so. However, s.16 cannot be restricted in the manner proposed

by the High Court. Financial capacity is a factor but not the only factor.

4. S.16(1)(a) provides that parties may apply for stay once application to set

aside award under s.15 has been made. It does not say that the application

must be made separately. It is wholly appropriate for stay under s.16 to be

filed together with setting aside under s.15 as a matter of practical utility.


issues- key observations1. Although s.16 is not limited to financial factors, an adj decision is a “monetary”

award. Outside of CIPAA, a stay of a monetary award requires exceptional

circumstances that relate to the enforcement of the judgement and not to the

validity or correctness of the decision. By using s.16 as safeguard against

wrong decisions, FC has made it easier for a stay under CIPAA compared to a

stay of other monetary awards.

2. Allowing stay as safeguard against wrong decisions may open the floodgates

for interim stays pending disposal of s.15 applications. That defeats the purpose

of CIPAA as a speedy remedy.

3. The good news is that the FC maintained a stay should not be given readily.

4. It is not accurate that we do not have a review procedure. S.28 (enforcement) is

our review procedure because it allows the HC to enforce the adj decision

“wholly or partly”. By affirming s.28 as the review procedure, the FC could have

maintained the high bar for stay in monetary awards for CIPAA.

6.6 Setting aside and stay issues-

what does it mean for you?

1. As Claimant:

A. More likely than not, you will be facing a stay application. The full scope of

stay factors are not yet defined. Possibly the test of “exceptional

circumstances” would still apply, although it may not be as limited as the

current position for monetary awards.

B. Winding-up is NOT an enforcement procedure. Can a successful claimant

petition for winding-up even before applying for s.28 enforcement? Would

the fact that a claimant petition for winding-up add to the “exceptional

circumstances” that will justify a stay? Your guess is as good as mine.

2. As Respondent:

C. File your s.15 setting aside and apply for an interim stay. At the very least it

buys you some time to pay.

Summary

1. By allowing jurisdictional challenge at any time, FC is upholding established principles.

This should be applauded as CIPAA was not meant to over-ride established principles

of law.

2. Previously, balance was overly-tilted in favor of Claimant and s.6(4) was extremely

limited (no positive defenses). This seemed unfair because some defenses go to the

heart of the claim. It is good the FC recognized this fact, but has it gone too far the

other way? (eg how is the encroachment issue within the jurisdiction of the

Adjudicator?)

3. There must be natural justice for Claimant also. How is it just the Claimant only has 5

working days to reply to un-declared defenses? Having no real opportunity to reply is a

breach of natural justice. We may end up seeing setting aside applications filed by

Claimants instead.

4. It is good the FC does not limit stays to impernicuosity, but it would have been better if

the FC affirmed the same benchmarks for any monetary awards as being applicable for

a CIPAA stay, instead of using the stay as a safeguard against wrong decisions.

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That’s all folks!

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view esteem v bina puri- what the federal court said and what you need to do moving forward

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