CIPAA applies to both interim claim and final claim

August 2019
by Janet Chai Pei Ying

CIPAA applies to both interim claim and final claim

By Janet Chai Pei Ying

 

The Federal Court recently decided in the case of Martego Sdn. Bhd. v Arkitek Meor & Chew Sdn. Bhd. & Another Appeal (Civil Appeal No. 02(f)-2-01/2018(W)) that the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) applies to both interim claim and final claim – that the definition of “payment” under section 4 of CIPAA 2012 also extends to final claim under a construction contract as it is payment under a final account to which a person is entitled to for work done or services rendered.

This decision puts to rest any doubt or uncertainty on the applicability of CIPAA 2012 to final claims, and one is now able to commence adjudication proceedings over a final claim in peace knowing that the adjudication decision based on a final claim would not be susceptible to be set aside on the basis of lack of jurisdiction just because it was a final claim.

 

Background to the decision of the Federal Court

The case of Martego Sdn. Bhd. v Arkitek Meor & Chew Sdn. Bhd. & Another Appeal concerns a payment claim by an architect firm (AMRC) in respect of its professional fees for work done before AMRC’s services was terminated. The scope of services required of the architect firm was for contract administration and included recommending the list of contractors for tender and issuing progress claim certificates to the contractors upon consultation with Martego.

AMRC commenced adjudication proceedings against Martego claiming for its professional fees for work done up to the date of termination of the services. When the adjudicator allowed AMRC’s claim, Martego filed an application in court to set aside the adjudicator’s decision on grounds of excess of jurisdiction that the contract of AMRC’s service did not fall within the definition section in CIPAA 2012, specifically that AMRC’s services of contract administration did not fall within the definition of construction consultancy services, and also on ground of breach of natural justice for failing to hold an oral hearing despite requests from Martego. The High Court did not allow the setting aside application and instead allowed AMRC’s application to enforce the adjudication decision.

On appeal to the Court of Appeal, whilst the parties had argued the same points which they took before the High Court, the Court of Appeal then posed to the parties a question on the applicability of CIPAA 2012 – whether CIPAA 2012 is applicable only for interim payment claim disputes or extends to final account claim disputes, which was an issue never argued before the adjudicator or the High Court.

In further submissions filed by the parties to address the Court of Appeal’s question, Martego’s counsel took the position that CIPAA 2012 does not cater for post-termination claims, as in the case of AMRC’s claim in question, and that CIPAA 2012 only applies to interim payment claims and not to ‘final claims’. In support of this contention, it was argued that the phrase ‘right to progress payment’ in section 36 of CIPAA 2012 infers that CIPAA 2012 covers only interim payment claims.

The Court of Appeal, by a majority decision, dismissed Martego’s appeal and held that as long as the claims were within the definition of ‘payment’ set out in section 4 of CIPAA 2012, CIPAA 2012 would be applicable, and it did not matter whether the payment claims were interim or final or made after a unilateral or mutual termination. A dissenting judgment was issued in that it was wrong to construe CIPAA 2012 to include claims for final payment when the mischief of CIPAA 2012 was to cure the timely payment for work related to progress payments and not the final account.

In its deliberation of the issue, the Federal Court took into account how the courts in Singapore interpreted its equivalent legislation of Building and Construction Industry Security of Payment Act (“SOPA”) when the Singapore courts took the view that the definition of progress payment is wide enough to include final payment as the payment under final account is also for work done or services rendered, and held that this was also the case under CIPAA 2012. In this vein, the Federal Court affirmed the decision of the majority in the Court of Appeal, and put to rest the issue that has been much debated about after the dissenting judgment of the Court of Appeal came about.

 

Conclusion

Our courts have been consistent in finding that the mischief that CIPAA 2012 intends to cure is none other than cash flow in the construction industry through an effective and economical mechanism. This is now reinforced by the above Federal Court decision that the objective and purpose of CIPAA 2012 is to provide an easily accessible, faster and cheaper resolution forum, i.e. adjudication, in respect of payment disputes pursuant to a construction contract.

The Federal Court in this decision also reinforced the position that adjudication operates independently on a separate track and it will not collide with arbitration or litigation, and an adjudication proceeding, arbitration and litigation may proceed concurrently and in parallel.

The Federal Court also observed that adjudication is a mandatory procedure under CIPAA 2012 and the right to statutory adjudication should not be circumvented by any contract where parties have agreed to arbitrate.