construction law digest april 2012

8/12/2019 Construction Law Digest April 2012

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Construction

Law DigestA SOCIEY OF CONSRUCION LAW,MALAYSIA NEWSLEERISSUE 1/2012 APRIL 2012 KDN NO. : PP 17626/12/2012 (031404)

Tank you for reading our CONSRUCION LAW DIGES.

Tis is the rst issue of the Construction Law Digest for the year 2012. Te inaugural issueof the Construction Law Digest was successfully launched at the end of December 2011.

It is extremely gratifying to know that the feedback from our readers have thus far beenvery positive. Some have even indicated that they would be happy to contribute their workto the Construction Law Digest. It was rather unfortunate that, due to space constraints,there were some interesting articles and case notes that could not be included in this issue.However, we will ensure that they are published in the next issue of the Construction LawDigest. We would like to sincerely thank all of our contributors for their support to this

Digest.

In this issue, there is an interesting and informative article on dispute resolution for theconstruction industry in Malaysia written by Mr. Sundra Rajoo who is the Director of theKuala Lumpur Regional Centre for Arbitration, and also the rst President of the Societyof Construction Law Malaysia. In this article, he provides instructive insights into thedevelopment and transformation of the dispute resolution framework in the context ofthe construction industry in Malaysia. Another interesting article to read is ConstructionIndustry Payment and Adjudication Bill 2011 - Will the Bill improve cash ow inMalaysia? written by our immediate past President, Mr Wilfred Abraham & SuhanthiSivanesan.

We also feature in this issue an article by Mr. Shannon Rajan on the recent developments

on the law governing injunctions on performance bonds, and a case commentary on twoSingapore High Court decisions in Lim Chin San Contractors Pte Ltd v LW InfrastructurePte Ltd, and LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011]SGHC 162; [2011] SGHC 163. In addition, there are two interesting articles, one onadministration of construction and engineering projects using an internet-based systemcalled C-COM by Mike McIver and the other by William Kennedy who provides usefulsuggestions that help to minimise the risks of time and cost overruns in constructionprojects.

Finally, we have included in this Digest a case report, with a commentary, on the landmarkMalaysia Court of Appeal case of Qimonda Malaysia Sdn Bhd (In Liquidation) v SediabenaSdn Bhd and Anotherconcerning the status of the retention monies retained by theemployer after its liquidation.

We hope that our readers will nd the articles and case notes in this issue of theConstruction Law Digest useful and informative. Happy reading.

Lam Wai Loon & Tayananthan BaskaranEditors

MESSAGE FROM

HE EDIORSCONENS

ARICLES3 Dispute Resolution for the

Construction Industry inMalaysia

13 Cloud Based Solution forContract Administration

23 Unconscionability: Is It AGround For An Injunction

On Performance Bond?

28 Construction Industry Paymentand Adjudication Bill 2011 -

Will the Bill improve cash ow in Malaysia?

34 MEP Design at ender Stage - ime for a change?

CASE NOES16 Acts of Prevention and

ermination : How do theyaffect the contractual right

to LAD?

20 Expert Witness Immunity IsAbolished!

CASE REPOR

37 Qimonda Malaysia Sdn Bhd(In Liquidation) v SediabenaSdn Bhd and Another

EVENS2 Vincent Powell-Smith Prize

Essay Writing Competition 2012

PUBLISHED BY :Society of Construction Law, MalaysiaNo. 28-1, Medan Setia 2,Bukit Damansara, 50490 Kuala Lumpurel : 03-2096 2228

PRINED BY :N.C. Print Sdn Bhd(197139-)AS 101, Jalan Hang uah 4,Salak South Garden,57100 Kuala Lumpur, Malaysia


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2 CONSRUCION LAW DIGES

HE SOCIEY OFCONSRUCION LAW, MALAYSIA

proudly announces the introduction of the

Vincent Powell-Smith Prize

Essay Writing Competition

Modelled along the highly acclaimed Hudson Prize,this competition is for essays on subject matters related to

Construction law of MALAYSIA

Papers Submission Deadline : 31stJuly 2012, Tursday, at 5.00 pm

1st

Prize : RM5,000 and a trophy2ndPrize : RM2,000 and a trophy(Commendations may also be awarded)

with winning entries to be published by SCL Malaysia

For further details relating to this competition, please contact Mr Lam Wai Loon via email: [email protected] Mr Tayananthan Baskaran via email: [email protected]

**Te Society of Construction Law Malaysia offers the Vincent Powell-Smith Prize annually for the bestessay submitted in the eld of construction law. It is named after Professor Vincent Powell-Smith inRecognition for his contribution to the study and practise of construction law in Malaysia.


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3CONSRUCION LAW DIGES

Sundra Rajoo

DirectorKuala Lumpur Regional Centre for Arbitration

OVERVIEW OFCONSRUCION INDUSRYIN MALAYSIA

Te year 2012 will mark a veryhigh growth in the constructionindustry. Te industry is expectedto grow at the rate of 7%, higherthan any other industry and willcontribute extensively to theoverall GDP of the country at thetarget rate between 5.5 to 6.0%.1

Te government of Malaysia iscautious with the impact to theeconomy resulting from the risein inationary percentages dueto the increase in commodityprices and European debt crisis.In its budget plans for the year

2012, the government hadincorporated stimulus packagewith substantial allocation forthe construction industry andintroduced a number of incentivesto attract foreign investors.

A number of major constructionprojects such as the RM40bil MRProject have been approved. Tisproject itself is set to increase the

property value and encourage

development along the proposedMR Lines. Other infrastructureprojects includes the Gemas-JohorBahru double track rail project,new highways (Lebuhraya Pantaiimur Jabor-Kuala erengganu;Lebuhraya Pantai Barat Banting-aiping, Segamat-angkak,Central Spine) creating greateraccessibility and spur developmentin new areas.

INCREASED PARICIPAIONIN INERNAIONALCONSRUCION PROJECS

Malaysian construction companieshave started to move beyond thehome grounds to working at globalscale. Tere has been serious increase

in participation in internationalconstruction projects. MARRADEreported that Malaysian constructioncompanies have an internationalproject portfolio worth USD15bilmainly in infrastructure. Malaysianexpertise in infrastructure buildinghas been deployed in 73 projectsacross the Middle East, includinglandmark initiatives such asBurj Khalifa, Al Reem Island,

Dubai Metro, Dubai Mall and

Meydan Race Course.2 In India,CIDB reports that Malaysiancompanies have so far completed51 construction projects worthUSD2.33 bil in India. Out of which21 projects valued at USD2.28bilare currently under various stagesof implementation. Some of theexamples include Scomi EngineeringBhd involvement in MonorailProject in Mumbai with RM2bilcontract award, Ranhill UtilitiesBhd partnered in a project to leaseand build water treatment plantsin West Bengal and IJM Corp Bhdparticipated in a major highwayproject worth RM500mil in AndhraPradesh.

According to a recent report on the

global construction market, it hasbeen estimated that constructionactivity in the key developingmarkets in China, India, Asia Pacic,Middle East, Africa, parts of EastEurope and South America will growat a staggering 110% (representingover 55% of global constructionactivity) over the next 10 years. Tis

will create a US$7 trillion marketbetween the developing economies.

1 StarProperty.my Budget 2012 boost to property and construction sectors by Datuk Abdul Rahim Rahman, Oct 29,2011.2 StarBiz.Malaysia pushing for more Middle East construction projects, March 30,2010.

MALAYSIA

DISPUE RESOLUION FORHE CONSRUCION INDUSRY

IN MALAYSIA


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Considering the massive growthof the industry in both the localand international front, Malaysiais equipped and is sensitive inmaking available swift and effectivemechanism for dispute resolutionand in dealing with the legalimplications. Tis is certainly asnecessary as the nancial incentivesand stimulus for economic growth.Liberalisation and opening up ofservices globally calls for attentionto one of the major area pertainingto dispute resolution which is therecognition and enforcement of

judgements and decisions madein countries other than the homecountries. For this the New YorkConvention is considered as oneof the best innovative invention,

providing great solution to inter-nation business relationship andeconomic globalisation.

RANSFORMAION INHE MALAYSIAN DISPUERESOLUION FRAMEWORK

We have seen transformation fromthe year 2010 in terms of the focusgiven and the increasing need to

improve the platform and frameworkfor alternative dispute resolution inMalaysia. Tere has been legislativechange, extensive support andincentives to the Kuala Lumpur

Regional Centre for Arbitration forimprovement of services and facilitiesand a welcoming change in the

Judiciarys attitude towards ADR.

In construction related disputes,arbitration stands out as a popularmode of alternative disputeresolution. It is not even consideredas alternative nowadays, it has itsunique features and effectiveness. Itis extensively used in constructionindustry in Malaysia due to theuse of standard forms in buildingcontracts. Te typical standardforms used provide for arbitration,for example the Public WorksDepartment and MalaysianInstitute of Architects forms forpublic and private sector works

and the International Federation ofConsulting Engineers (FIDIC) formsfor International Projects.

Last year, the Malaysian ArbitrationAct 2005 was amended by theArbitration (Amendment) Act 2011which came into operation 1st July2011. Tis change was much awaitedfor and effectively resolved concernscaused by the drafting of the 2005

Act. With the amendment, it nowallows the courts to stay proceedingsand grant interim measures inrespect of international arbitrations

with a seat outside of Malaysia.

Further, an award made in aninternational arbitration with its seatin Malaysia would now be enforcedby the Courts. Te Amendment Acthas also moved closer to the ModelLaw. Te courts ability or power tointervene in arbitration is strictlylimited to those areas covered underthe act. Tis restricts the inherent

jurisdiction of the courts and wouldultimately reduce the uncertainty incase laws.

EVOLUION OF HEMALAYSIAN JUDICIARY

Te current attitude of the MalaysianJudiciary is towards giving effect toparties pre-agreed dispute resolutionmechanism unless the courts nds

that the agreement is null and void,inoperative or incapable of beingperformed. Tere are a numberof recent cases where the courtsmaintain that it is mandatory to staycourt proceedings when there is anarbitration agreement.

Te courts take a more pro-enforcement stance of arbitralawards, very slow to interfere and

recognise the benets of ADRfor settlement of disputes. Newcommercial courts have beenintroduced to improve the timetaken by courts to hear a matter or

In construction related disputes, arbitration stands outas a popular mode of alternative dispute resolution. It isnot even considered as alternative nowadays, it has itsunique features and effectiveness.


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decide on interim reliefs. Te courtssystem has improved tremendouslyand this we see as working hand inhand with other forms of alternativedispute resolution mechanismcomplementing the chain of a multi-tier dispute resolution process.

KUALA LUMPUR REGIONALCENRE FOR ARBIRAION(KLRCA)

KLRCA is the leading arbitralinstitution in Malaysia. We are aninter-governmental body underthe auspices of Asian AfricanLegal Consultative Organisation(AALCO) situated at the heartof Kuala Lumpur, Malaysia. Inthe past 2 years, with the support

from the stakeholders, AGChambers, the Bar Council and

Judiciary, KLRCA has managed tosuccessfully mark its name in theglobal arbitration map. We havebeen at the forefront in encouraginginternational arbitrations to be heldin Malaysia with numerous activities,hosting regional conferences andinternational road-shows. With thefull support of stakeholders, KLRCA

is able to provide a world-classservice for resolution of dispute atvery reasonable costs.

We have introduced a number of

rules such as the KLRCA ArbitrationRules 2010, Fast rack ArbitrationRules 2010, Mediation/ConciliationRules 2011 and Islamic Banking andFinancial Rules 2007.

KLRCA is the rst centre to adoptthe UNCIRAL ArbitrationRules 2010 in full with somemodication. Te Rules allow a greatdeal of exibility in the conduct ofarbitration proceedings, leaving widediscretion to the parties regardingthe choice of arbitrators, place andthe applicability of procedural rules.KLRCA also introduced Fast rackRules to deal with disputes whichare of smaller quantum and lesscomplex. Te Fast rack Rules asthe name suggest, provides for the

resolution of dispute within 140days. It also allows for documentonly arbitration for a shorterduration of about 90 days.

KLRCA continuously reviews andrevise the rules to ensure that currentpractices and advent in arbitrationor other forms of dispute resolutionmechanics are made available foruse. Te Fast rack Rules is revised

in the rst quarter of this year.Te arbitration fees under the Fastrack Rules have been reducedto ensure that it is affordable and

widely used. Te Fast rack Rules is

extremely suitable to be applied forthe construction industry especiallyfor dispute relating to payment inthe course of a project. Not only itprovides a quick process but there isnality.

Speaking of payment disputes,despite the changes to the law,improvement to the courts systemand having in place good servicesand facilities for arbitration, theconstruction industry still facesproblems in the swift resolutionof disputes relating to payment inthe course of a project. Arbitrationor litigation is usually a last option

when parties are unable to resolvethe dispute and is ready to terminatethe contract. However in a typical

construction project, disputesrelating to payment commonly arisein the course of the works.

Another recent advent in Malaysia,forming an alternative not only tocourts, but to arbitration as well,is the Statutory Adjudication.Malaysia is soon to follow the likesof the United Kingdom, Australia,New Zealand and Singapore. Te

Construction Industry Paymentand Adjudication Bill 2011 (CIPA)having recently passed through a rstreading in Parliament and is toutedto be enacted in March 2012.


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Payment default has been the mainissue of dispute in the constructionindustry. Surveys were carried outby the construction industry itself,namely the Construction IndustryDevelopment Board (CIDB) andthe Master Builders AssociationMalaysia (MBAM) to determinethe root of the problem and allroads lead back to payment default.Delayed payment, non-payment andconditional payment namely pay

when paid and pay if paid haveseverely crippled the constructionindustry. Payment default triggersa domino effect in the constructionindustry affecting all the players.Te main reason for this is becauseconstruction projects especiallymega projects are stretched over

long periods of time and involves alarge sum of monetary payment perprogress payment. Hence any delayor payment on condition wouldinadvertently have a huge impact onthe construction project.

Tis form of dispute is notsomething new or related solelytowards mega constructionprojects alone. Experience from

other countries showed that theconsequences of payment defaultcan result in insolvencies. Severalcountries in the world namely theUnited Kingdom, several States

and erritories in Australia, NewZealand and Singapore have takenthese problems to heart and haveenacted specic legislation to deal

with disputes of this nature inthe construction industry. TeUnited Kingdom enacted theHousing Grants, Construction andRegeneration Act 1996, Australiasaw the advent of the Building andConstruction Industry Security ofPayment Act 1999 amended in 2022(NSW), Building and ConstructionIndustry Security of Payment Act2002 (Qld), Construction Contracts

Act 2004 (WA), ConstructionContracts (Security of Payment) Act2004 (N), New Zealand enactedthe Construction Contracts Act2002 and Singapore ushered in the

Building and Construction IndustrySecurity of Payment Act 2004.

HE MALAYSIANCONSRUCIONINDUSRY PAYMEN AND

ADJUDICAION BILL 2011

Te Construction Industry Paymentand Adjudication Bill 2011 (CIPA)had recently passed through a rst

reading in Parliament and is toutedto be enacted in March 2012. Teconstruction industry themselveshave been pushing the governmentto enact this piece of legislation

since 2003 to address the cash owproblems plagued by the industry.Te primary objective of theproposed Act is to address criticalcash ow issues in the constructionindustry. It aims to remove thepractice of conditional payments(pay when paid and pay if paid)and reduce payment default byestablishing a cheaper, speediersystem of dispute resolution in theform of adjudication. Accordingto the provisions of CIPA everyconstruction contract made in

writing that relates to constructionwork carried out in Malaysiawould be affected by the regime ofadjudication. Tis would essentiallymean that if you have entered intoa construction contract and there is

a problem with regards to payment,an adjudication process can becommenced either by you or againstyou. A construction contract can bea construction work contract and ora construction consultancy contract.

o this extent, the parties will besubjected to compulsory adjudicationor statutory adjudication. Tis

would mean that both parties will be

brought into the adjudication processwhich is dictated by the provisions ofCIPA. Te provisions of CIPA doesnot however affect natural personsentering into a construction contract


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in respect of a building whollyintended for his own occupation andis four storeys and below.

Te purpose of adjudication is tohurry along cash ow and facilitatepayment in the constructionindustry. Parties are free to opt forarbitration or court litigation to deal

with the legal matters concerningthe same. CIPA simply providesa statutory right for the parties todemand payment for work done andto create a simple process to ensurethat a decision and payment is made.Tis of course is in the form ofadjudication as a process. In fact, theparties can commence adjudicationand concurrently arbitrate or litigatethe matter as well. Of course,

common sense would dictate thatthe adjudication process will beterminated if the dispute is decidedby arbitration or the court before theadjudication decision can be made.If however, the adjudication decisioncomes rst then it is a bindingdecision and payment must be made.

ADJUDICAION AS A MEANSOF DISPUE RESOLUIONIN HE CONSRUCIONINDUSRY

Although construction disputescan be solved by either going tocourt or arbitration, the partiesare keen for an alternative formof dispute resolution. One thatis contemporaneous, speedy andeconomical. In comes adjudicationas a method of dispute resolution.

Adjudication is a means of disputeresolution that allows a party (theclaimant) who are owed moniesunder a construction contract topromptly obtain payment fromthe respondent, based on anassessment of the merits of the claim

by an appropriately qualied andindependent adjudicator. In short,adjudication describes the disputeresolution process for constructiondisputes. It is not possible tocontract out of the Act. Teadjudication process is prescribedby the proposed CIPA Act itself.Unlike arbitration or mediation,adjudication does not require theparties agreement for the process

to begin. As such, once either party

opts for adjudication it becomes acompulsory process wherein bothparties are involved whether theyagree to or not. In the UnitedKingdom, the adjudication process

was described by ony Bingham as[A] dispute management process,

which dramatically improves uponlitigation performance and savehuge resources in public money.Te UK Courts are relieved of massexpenditure. Te new system of

Adjudication is cost effective andrecommended world-wide. Tismachinery coupled with the newPayment Provisions has improvedUK construction beyond allexpectations... even the lawyers aredelighted, though surprised at itssuccess.3

Adjudication is not a disputeresolution system that provides theadjudicator with the luxury of timeto hear all the parties and listen toevidence in great detail akin to anarbitration or court trial. A list ofpowers granted to the adjudicatorcan be found in the Act.4 Someof the procedures adopted by theadjudicator, besides conducting a

short trial would be to review the

3 Bingham , Adjudication and Claim Settlement for the Construction Industry, Seminar, Kuching, Sarawak, 14 April 2001, < http://www.nadr.co.uk/articles/published/Adjudication ConstructionBetterBuilding.pdf>, (accessed on 30 Jan 2012)4 Section 25 Powers of the adjudicator, CIPA 2011

Of course, common sense would dictate that theadjudication process will be terminated if the dispute isdecided by arbitration or the court before the adjudicationdecision can be made.


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construction contract and otherdocuments5to decide whether thereis compliance with the standard of

work required by that contract. TeEvidence Act 1950 does not apply toadjudication proceedings under this

Act.6Te adjudicator can also visitthe construction site to investigatethe dispute7. Te adjudicator wouldthen give a decision with the primaryaim to alleviate cash ow problemsbetween the disputing parties and toremove payment conditions8such aspay when paid and pay if paid.

Adjudication is a dispute resolutionsystem that is intended to be simpleand fast. Te process as prescribedby the proposed CIPA Act is conciseand the time accorded to the

adjudicator to produce the writtendecision itself is forty ve (45) daysfrom the receipt of the adjudicationreply or response unless the partiesextend the time.9Te entire processpromises an outcome within anapproximate one hundred (100)day time frame from the day thepayment claim is served until thedecision is passed. Tis would ensurethat the cash ow problems in the

construction industry can be dealtwith swiftly.

Hence although the role ofadjudication is limited to thesecircumstances as prescribed bythe proposed Act, the adjudicatorprovides fast justice to the parties.

Adjudicators are to always actindependently, impartially and ina timely manner. Te principles ofnatural justice are strictly followedand if there is any conict of interest,the adjudicator should resignfrom offi ce unless the parties agreeotherwise.10

Statutory adjudication has thefollowing characteristics -1. It is a mandatory and statutory

process that does not requirethe agreement of the parties tocommence the process.

2. It offers a much faster processcompared to arbitration andcourt litigation because the timeframe is as prescribed by theproposed CIPA Act itself. It is theonly form of dispute resolutionthat has a statutory time periodin which the dispute must be

resolved in forty ve (45) workingdays from the receipt of theadjudication reply or response.

3. It provides a binding decision ona payment dispute.

4. Te parties can choose their ownadjudicator or request for theDirector of KLRCA to choose anadjudicator on their behalf.11

In short the focus is primarilyand steadfastly on removing cashow problems in the constructionindustry by helping move thingsalong by dispensing fast decisions onpayment disputes alone. It was nevermeant to be a process that allowsthe parties the luxury to ventilateevery single proposition in greatdetail unlike litigation in court or

arbitration for that matter. A disputereferred to adjudication can, at thesame time that the adjudicationis taking place, also be referred tomediation, arbitration or litigation.12Tis does not bring the adjudicationto an end or affect it.13However, ifanother form of dispute resolutiondetermines the matters rst, theadjudicator must terminate theadjudication.14

5 Section 25(m) CIPA 20116 Section 12(9) Adjudication and decision, CIPA 20117 Section 25(h) CIPA 20118 Section 35 Prohibition of conditional payment, CIPA 20119 Section 12(2) Adjudication and decision, CIPA 2011

10 Section 24 Duties and obligations of the adjudicator, CIPA 201111 Section 21 Appointment of adjudicator12 Section 37 Relationship between adjudication and other dispute resolution process13 Section 37(2)14 Section 37(3)

CIPA has recently passed the second reading and thirdreading, and the full impact of the proposed Act is yet to beknown. Lessons from other countries seem to suggest thatadjudication is an effective method and their construction

industry has benetted from it.


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HE EFFECIVENESS OFSAUORY ADJUDICAIONVIA CIPA 2011

Statutory adjudication is simply anadjudication process prescribed bystatute. Parties who are compliant

with their construction contracthave no need to fear. However,parties who are non-compliant

would now be subject to statutoryadjudication as the aggrieved party

will as mentioned above, triggerthe adjudication process. Te morepertinent question at this stage, is

whether this new form of statutoryadjudication is the key answer tosolving disputes for the constructionindustry? CIPA has recently passedthe second reading and third reading,

and the full impact of the proposedAct is yet to be known. Lessons fromother countries seem to suggest thatadjudication is an effective methodand their construction industryhas benetted from it. Literaturefrom Australia, United Kingdom,New Zealand and Singapore hasindicated a successful, swift andcost-effective resolution of disputes

in each relevant jurisdiction(Dancaster, 200815; Uher & Brand200816; Kennedy-Grant, 200817;and Chan, 200618). In the UK,adjudication is now being usedmore extensively than anticipated(Kennedy, 2006 ). Claimants aresatised to a high degree with theNSW adjudication scheme. In NewZealand, anecdotal evidence suggeststhat there has been a positive changein the culture of payment since theintroduction of adjudication underthe Construction Contracts Act2002 (Kennedy-Grant, 200819).Similarly in Singapore, adjudicationas underpinned by the Building andConstruction Industry Security ofPayment Act 2005 has had a positiveimpact on the industry players

mindset towards payment (eo,200820).

Many believe that adjudicationis a new layer to the methods ofdispute resolution in Malaysia. Itis denitely not a pre-conditionto a court litigation, arbitration ormediation for that matter, nor doesit prevent parties from using those

forms of dispute resolution means.For all intents and purposes it doesnot replace the existing disputeresolution systems but merely addson to it. It provides the parties withanother useful form of disputeresolution which promises to befast, cheap and effective. It allowsthe aggrieved party to trigger thestatutory adjudication process.

First and foremost, the Bill applies toevery construction contract made in

writing relating to construction workcarried out wholly or partly withinMalaysia including Governmentcontracts.21Construction contractincludes construction work contractsand construction consultancycontracts. Te Bill is wide ranging

and covers inter alia, the oil andgas industry, petrochemical,telecommunication, utilities,infrastructure, supply contracts,project and management. However,only written contracts are subject tothe provisions of CIPA 2011 whichis a cause of concern as some partiesmay escape the clutches of CIPAespecially if their work instructions

15 Dancaster, C. (2008). Construction Adjudication in the United Kingdom: Past, Present, andFuture. Journal of Professional Issues in Engineering Education and Practice, 134 (2), 204-208.

16 Brand, M. C., & Uher, . E. (2008). Review of the Performance of Security of PaymentLegislation in New South Wales. RICS Construction and Building Research Conference 2008(COBRA 2008). Dublin: Royal Institution of Chartered Surveyors (RICS).

17 Kennedy-Grant, . (2008). Adjudication: Te New Zealand Position. Construction LawJournal, 24 (5), 382-409.

18 Chan, P. C. (2006). Security of Payment Legislation - Case of a Blunt but Practical and

Equitable Remedy. Journal of Professional Issues in Engineering Education and Practice,132 (3),248-257.

19 Kennedy, P. (2006). Progress of Statutory Adjudication as a Means of Resolving Disputesin Construction in the United Kingdom. Journal of Professional Issues in Engineering andEducation Practice , 132 (3), 236-247. p. 244.

20 eo, P. J. (2008). Adjudication: Singapore Perspective. Journal of Professional Issues inEngineering Education and Practice , 134 (2), 224-230.

21 Section 2 Application


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are not properly documented inwritten format.

Te Malaysian CIPA Bill enableseither the unpaid party or a non-paying party to refer the disputearising from a payment claim toadjudication.22As such, this enableseither party to bring an action inadjudication. Reference can bemade to a research paper by M.E.Che Munaaim23, where he statedthat the key features of the effectiveoperation of an adjudication regimeis that rstly adjudication shouldbe used to help the right vulnerableparties which are contractors,subcontractors, consultants andsuppliers. Employers may alsobe equipped with the right to

adjudication to enable them toclaim ex-contractual claims. Inother words, adjudication should beaccessible to both parties to prevent asevere imbalance.

Understandably adjudication mustbe speedy however this does notmean that the entire system mustbe rushed. Compared to other

jurisdictions in the world, which

have a basic 28 day turnaround timefor adjudicators to submit a decision,CIPA allows for a 45 day period.Tus providing ample time forcareful consideration is granted.Other jurisdiction have expressstipulations against contracting out,in New Zealand there is Section 12of the Construction Contracts Act2002 whereas in Singapore thereis Section 36 of the Building andConstruction Industry Securityof Payment Act 2004. Tere is nosimilar provision in CIPA 2011to prohibit a contracting out fromthe proposed Act. Nonetheless,on considering the spirit of CIPA2011 and construing it as a whole,in particular Section 2 connoting

the strict application, Section 35on the prohibition of conditionalpayment and Section 40 whichdeals with the exemption exercisedby the Minister, it appears to be littleroom is given for any attempt tocontract out of CIPA. Perhaps theonly avenue available to avoid theclutches of CIPA is by seeking anexemption from the Minister underSection 40 itself. Te extent of this

exemption appears to be from all orany provisions of CIPA as such it isa very wide power which needs to beexercised sparingly.

Te denition of payment underSection 4 includes any paymentfor work done for example aconstruction work, payment forservices rendered for exampleconsultancy service or work doneor services rendered and statedin express terms of the contractincluding progress payment, nalpayment and variations. Payment forconstruction contracts outside theambit of the denition in Section 4or payment for work done or servicesrendered under implied terms, extra-contractual, common law, ex-gratia

claims etc are not however included.

An effective and important provisionin CIPA is the prohibition ofconditional payment followingSection 35. Any conditional paymentprovision in a construction contractin relation to payment under theconstruction contract is void. Tis isas mentioned earlier the pay whenpaid and pay if paid clauses. Tis

22 Section 7 (1) Right to refer dispute to adjudication23 Che Munaaim, Key Features to an Effective Adjudication Regime, AUBEA Conference, Melbourne July 2010, www.msd.unimelb.edu.au/events/conferences/aubea2010/, (accessed 30 Jan 2012)


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reverses the judicial decisions incases such as Pernas Otis ElevatorCO Sdn Bhd v Syarikat Pembinaan

Yeoh iong Lay Snd Bhd (2004)5CLJ 34 and Asiapools (M) Sdn Bhdv IJM Construction Sdn Bhd & Ors(2010)3 MLJ 7, as such effectivelycurbing the pervasive unfair cashow risk transfer practice prevalentin the construction industry.

KLRCA has been named the offi cialadjudication authority in Malaysiaby virtue of Part V of CIPA. Asadjudication authority, KLRCA isresponsible for the determination ofthe standard terms of appointmentand fees of that adjudicator andthe setting of the competencystandard and the criteria required

of an adjudicator in Malaysia.In setting the competency andcriteria required for adjudicators inMalaysia, KLRCA has prepared an

Adjudication raining Programmeto enable proper certication for allfuture adjudicators. It is mandatoryfor all persons who are interestedin providing adjudication servicesto partake in the programme.Tere are 2 sets of training

programmes to be made available,rst an Adjudication raining forthe Legal Expert and second, an

Adjudication raining for the NonLegal Expert. Te Adjudication

raining Programme would consistof specic lectures on the workingsof the proposed CIPA Act, speciclectures on key legal areas/key areasin construction matters, trainingon writing adjudication decisionsand a written examination whichincludes the drafting of a mockadjudication decision. Tose whohave successfully completed theKLRCA Adjudication rainingprogramme will be awarded witha Certicate of Adjudication and

would be eligible to apply to join thepanel of KLRCA Adjudicators. Tecriteria to be an adjudicator wouldinclude a relevant degree or diploma,a certain number of years experiencein the building and constructionindustry and a Certicate of

Adjudication from KLRCA. Tiswould effectively ensure that thequality of adjudicators is of thehighest standard possible.

KLRCA has also been tasked withproviding administrative support forthe conduct of adjudication and anyfunctions as may be required for theeffi cient conduct of adjudication asprescribed by the proposed Act.

Te employers and those in theconstruction industry or relatedindustry must be well prepared tohandle the effects of the proposed

Act whether commencing anadjudication or defending themselvesagainst an adjudication action.Certain sectors of the industry feltthat more could have been done. Bethat as it may, what is important isthat the problems highlighted by theparties in the construction industryare being dealt with seriously.

CONCLUSION

Te construction industryin Malaysia is seeing greattransformation in its disputeresolution framework. Specialattention is given to resolving theindustrys main problem relating totimely payment. An effective, swiftand robust dispute resolution is a

need of the hour in ensuring that theindustry grows at a world class level.

Writers e-mail:[email protected]

Te construction industry in Malaysia is seeing greattransformation in its dispute resolution framework.Special attention is given to resolving the industrys main

problem relating to timely payment.


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Mike McIverPlus Tree Consultants (M) Sdn Bhd

MALAYSIA

A CLOUD BASED SOLUION FORCONRAC ADMINISRAION

Fig 1: Example project implementation

C-COM: HE CONRACADMINISRAION PLAFORMFOR CONSRUCIONPROJECS

A contract-integrated systemspecically designed for constructionand engineering projects is currentlybeing introduced in Malaysia.Te revolutionary, internet-basedsystem can be specied in theparticular conditions of contractand provides a real-time protocolfor exchange and logging ofcontractual data between employers,project managers, contractors andsubcontractors.

Te system, called C-COM, is nota document management system -instead of requiring documents asinput, the system is heavily formsdriven these online forms promptusers for relevant information andgenerate and transmit the appropriatedocumentation automatically. Teintelligence required in order togenerate such documentation isembedded in C-COM and has beendeveloped by technology companiesin conjunction with construction lawexperts.

C-COMs application in terms ofconstruction disputes is invaluabledue to the fact that a detailed recordis kept of specic work that has beencarried out on a daily basis as well asvarious daily conditions on a givenproject. Tis means that determining

what has happened after the event ismade easier and more effi cient.

C-COMs key functionality can beexplained within the context of thefollowing processes:

Site RecordsTe C-COM Site Diary allowsfor direct online submission ofindependently congured site diariesfor multiple locations, disciplinesor subcontracts. A built-in approval

system noties users when theirelectronic signature is required andupdates submitters when their sitediaries are accepted or rejected.

Powerful reporting facilities allowimmediate access to a variety ofexible reports with MS Excelexport facilities so that search andlter of data is available at theclick of a mouse. Weather records,

plant and labour statistics, data andmaterial delivery can be searchedfor and reported on from years ofdata input at almost instant retrievalspeeds.


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Te system features personalisedtriggers which users can setup tomonitor and detect risk in the dailysubmitted site records. C-COMmeasures inputted data againstthresholds and if the thresholds areexceeded, alerts are immediatelysent to the relevant people via e-mailand/or SMS.

Risk ManagementIn addition to automaticallydetecting risk, C-COM has auser-managed Risk Register whichauthorized users can add risks to.

When a risk is added it is loggedagainst a particular contract anddescribed in detail, furthermoreusers can add supportingdocumentation or photos to risks.

Alerts are sent to subscriberswhenever a new risk is added andnow people can view the risk, addcomments and suggest mitigationstrategies.

Risks can easily be searched bykeyword, severity rating, contract,etc. and results can be printed oroutput to Excel format.

Claims administrationC-COM understands the claimsprocess for FIDIC and NECcontracts at present and supportfor a variety of Asia Pacic formsof contract are currently beingdeveloped. Te system provides users

with a platform for transmittingand receiving claim-relatedcorrespondence.

Te claims administrator neveracts automatically but providescontinuous feedback to users withinC-COM and by means of e-mailand/or SMS urging users to act

when action is required of them.

C-COM uses data from risks orevents to automatically generate

notices when instructed and thensends the notices via e-mail to allnecessary recipients. Once a noticehas been sent C-COM automaticallycreates a task for the appropriate userto complete the next step as requiredby the contract. C-COM tracks alltime bars and escalates tasks whichmust be performed when they areclose to being time barred.

Since C-COM is specied forall claim related exchanges it canprovide real-time commercialreporting for any contract it is usedon.

Being a cloud based system all datais securely stored and is accessibleto all authorised users on a real timebasis from site level up to head offi ceand provides an excellent data baseif forensic examination is required indispute resolution.

Te system is available in a numberof varieties, including a Litepackage which excludes claim-related facilities and instead focuses

on site data and risk detection,communication and management.C-COM has been developed byContract Communicator Systemsand is marketed and distributed inMalaysia by Plus 3 Consultants.

Web : www.plus3.com.myE-mail : [email protected] : Nick Anderson / Mike McIver

Offi ce : +603 6201 0996


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Serene Hiew

Associate,SKRINE

ACS OF PREVENION AND ERMINAION:

HOW DO HEY AFFEC HECONRACUAL RIGH O LAD?

Serene Hiew discusses tworecent landmark decisions of theSingapore High Court in LimChin San Contractors Pte Ltd vLW Infrastructure Pte Ltd and LWInfrastructure Pte Ltd v Lim ChinSan Contractors Pte Ltd [2011]SGHC 162; [2011] SGHC 163.Tese decisions are important inthe construction industry, as statedby the Learned High Court Judge

Judith Prakash in the Introductionof her rst judgment which reads:

Tis case (Originating Summons769 of 2010 (OS 769) is oneof the two cross-appeals on severalquestions of law which arise outof an arbitral award. Te otheris Originating Summons 759 of

2010 (OS 759). wo of theissues raised in the appeals are ofconsiderable importance in theconstruction industry, and, so faras I am aware, have not yet beenexpressly decided.

HE FACUAL BACKGROUND

opmost Industries Pte Ltdas the employer engaged LW

Infrastructure Ptd Ltd (LW)as its main contractor for thedesign and construction of anindustrial building known as LW

echnocentre at 31, oh GuanRoad East, Singapore 608608 (theProject). LW in turn appointedLim Chin San Contractors Pte Ltd(LCS) as its sub-contractor for theProject (except the mechanical andelectrical works which were sub-contracted to one Luen Wah ElectricCo (Pte) Ltd).

Pursuant to the sub-contract betweenLW and LSC, LSC was required tocomplete the sub-contract worksby 2 August 2001. Both partieshad subsequently agreed that anextension of some three months

would be given to LCS. However,as of 12 May 2003, the works

were still not completed. As aconsequence, LW terminated the

sub-contract. After termination, LWengaged various sub-contractors tocomplete the Project. Te emporaryOccupation Permit for the Project

was granted by the relevantauthorities on 1 August 2003.

On 22 June 2004, LW commencedarbitration by serving a notice ofarbitration on LCS. Te arbitratoraccepted the appointment on

9 November 2007 and issuedhis award on 29 June 2010. Asupplementary award was issuedon 15 July 2010 to correcttypographical errors. In his award,

the arbitrator had made, inter alia,the following decisions which wererelevant to the appeals:

(i) although there were severalinstances where the LW haddelayed the progress of the

works, LCS had failed to provethat these incidents had causeda delay in the overall completionof the sub-contract works;

(ii) LWs contractual right toclaim for liquidated damagesagainst LCS which accruedprior, and after, the terminationof the sub-contract hadbeen extinguished after thetermination of the sub-contract.LWs claim for damages for

delay would be by way ofgeneral damages;

(iii) LWs claim for liquidateddamages had failed becauseLW had failed to prove the loss

which was attributable to LCSsbreach of contract in the lattersdelay in completion of the

works.

Subsequently, LW and LCS ledseparate originating summons at theSingapore High Court seeking toappeal on questions of law arisingout of the arbitral award.


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MALAYSIA

ORIGINAING SUMMONS 769OF 2010 (OS 769)

OS 769 was led by LCS in thefollowing questions of law:

(a) where there were acts ofprevention which caused delayin the progress of the worksand which were not extendableunder the sub-contract,

whether it was necessary forLCS to have been preventedfrom completing the works bya prescribed date in order fortime to be set at large (the 1stquestion of law);

(b) where there were acts ofprevention which caused delay

in the progress of the worksand which were not extendableunder the sub-contract, whetherLW was entitled to exercise itscontractual right of terminationunder clause 27.1 of the sub-contract or if LW was so entitled,

whether it could only do so byreference to a reasonable time forcompletion of the works (the2ndquestion of law);

(c) where there were acts ofprevention which caused delayin the progress of the worksand which were not extendable

under the sub-contract, whetherLW was entitled to exercise itscontractual right under clause27.4 of the sub-contract toclaim for costs incurred inengaging other contractors tocarry out the works under thesub-contract (the 3rdquestionof law).

With regard to the 1st question oflaw, the Learned High Court Judge

Judith Prakash answered the questionin the affi rmative, and decided thatit was necessary for LCS to havebeen prevented from completingthe works in order for time to be setat large. Te learned judge made adistinction between a delay event bythe employer which only delayed the

progress of the works and one whichdelayed the completion of the works,and held that it was the latter whichconstituted an act of prevention

which set time at large. However,the learned judge conrmed that,if a contract provided that the dateof completion would not set timeat large even if the completion dateof the works was delayed, then thecourt would uphold this bargain.

With regard to the 2ndand 3rd

questions of law, as the Arbitratordid not have the opportunity ofdeciding the effect of time being set

at large on LWs right to terminatethe sub-contract given his decisionthat time was not set at large, thelearned judge held that it wouldnot be in a position to decide thesequestions.

In the circumstances, the learnedjudge dismissed LCSs appeal.

ORIGINAING SUMMONS 759OF 2010 (OS 759)

OS 759 was led by LW in thefollowing questions of law:

(a) whether the contractual rightof LW to claim for liquidateddamages against LCS under theprovisions of the sub-contract

for delay to the completionof the works by LCS, whichaccrued prior to terminationof the sub-contract, had beenextinguished or renderedinapplicable followingtermination of the sub-contract(the 1stquestion of law);

(b) whether the contractual rightof LW to claim for liquidated

damages against LCS under theprovisions of the sub-contractfor delay to the completionof the works by LCS, whichaccrued prior to termination


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of the sub-contract, had beenextinguished or renderedinapplicable followingcompletion of the works byothers after termination of thesub-contract (the 2ndquestionof law);

(c) whether, in a claim forliquidated damages incurredor suffered by LW prior to thetermination of the sub-contractfor delay in completion by LCS,LW was required to prove theextent of damages incurred orsuffered and attributable toLCSs breach of contract arisingout of their delay in completingthe works (the 3rdquestion oflaw).

With regard to the 1st questionlaw, whilst LW agreed with the

Arbitrators decision that all futureobligations under the sub-contractceased upon termination so thatno claim for liquidated damages

which accrued after terminationmay be made, LW submitted thatthe Arbitrator was wrong in holdingthat LWs contractual right to

claim for liquidated damages whichaccrued prior to the terminationhad also been extinguished uponthe termination of the sub-contract. In allowing the appeal,

the learned judge held that it is awell established principle that thetermination of a contract does notaffect the right rights which haveaccrued prior to termination, andas such, LWs contractual right toclaim for liquidated damages whichaccrued prior to the terminationremained intact.

In respect of the contractual rightto claim for liquidated damagesafter the termination, the learned

judge conrmed that no claim toliquidated damages could be broughtin respect of the period after thetermination of the sub-contract. Telearned judge went on to hold, by

way of obiter, that even if there wereacts of prevention which delayed

the overall completion of the works,there would still be entitlement toclaim for liquidated damages underthe contract which accrued beforethe date of such acts of preventionactually occurred. In this case, the

Arbitrator had decided that there wasno act of prevention which delayedthe overall completion of the works.

With regard to the 2ndquestion

of law, the learned judge heldthat, in the absence of any expressprovision stipulating to the contrary,the events which occurred afterthe termination should not affect

the ability of LW to claim forliquidated damages under thesub-contract which accrued priorto the termination. Following theconclusion made in respect of the1st question of law, the learned

judge allowed LWs appeal on thisquestion of law.

With regard to the 3rdquestion oflaw, the learned judge took the viewthat the arbitrator had not decidedthe issue of damages on the basisof LWs contractual right to claimfor liquidated damages under thesub-contract but of LWs right togeneral damages under the commonlaw. Te learned judge held that,therefore, it was not brought againsta question of law arising out of an

award and dismissed LWs appeal inrespect of the 3rdquestion of law.

Given that LWs appeal on the1st and 2ndquestions of law wasallowed, the learned judge took theview that the question of remedieshad to be considered, and hence,remitted the award to the Arbitratorfor reconsideration on the issueof whether LW was entitled to

liquidated damages between 5November 2002 and 12 May 2003,i.e. the period between the extendedcompletion date to the date oftermination.

Te Learned High Court Judge Judith Prakash answeredthe question in the affi rmative, and decided that it wasnecessary for LCS to have been prevented from completingthe works in order for time to be set at large.


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SIGNIFICANCE OF HESEDECISIONS

Te cases of Lim Chin SanContractors Pte Ltd v LWInfrastructure Pte Ltd and LWInfrastructure Pte Ltd v Lim ChinSan Contractors Pte Ltd [2011]SGHC 162; [2011] SGHC 163are signicant in that the learnedSingapore High Court Judge

Judith Prakash conrmed two veryimportant principles of constructionlaw, rst, only acts of preventionby the employer which affect theoverall completion of the works, notmerely the progress of the works,

will set time at large, and secondly,in the absence of any contractualprovision stipulating to the contrary,

the employers contractual right toclaim for liquidated damages undera contract which have accrued priorto termination of the contract is notextinguished by termination of thecontract.

Te decisions of Lim ChinSan Contractors Pte Ltd v LWInfrastructure Pte Ltd would beinstructive to the Malaysian courts

when approaching the same issues.However, it should be noted that,under the Malaysian law, thecontractual right to liquidateddamages in the sum as agreed under

a contract is not automatic. In theFederal Court decision of SelvaKumar a/l Murugiah v Tiagarajaha/l Retnasamy [1995] 1 MLJ 817, it

was held that, pursuant to Section75 of the Malaysian Contracts

Act 1950, notwithstanding thestipulated liquidated damagesentitlement under the contract, nodamages would be awarded to theemployer if it failed to prove actualloss suffered as a result of the delaycaused by the contractors breach ofcontract, unless the employer couldshow to the satisfaction of the courtthat the losses suffered by it weresuch that it would be impossible forthe court to assess.

Writers e-mail:

[email protected]


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EXPER WINESSIMMUNIY IS ABOLISHED!

Jones v Kaney [2011] UKSC 13; [2011] 13 Con LR 1.

In Jones v Kaney, the UK SupremeCourt by a majority decision of 5-2abolished the general immunityafforded to expert witnesses fromsuits by clients that had been inplace for more than 400 hundredyears (see Cutler v Dixon (1585)4 Co Rep 14b). Te reasons forthe abolishment are essentially asfollows:

(1) A barristers immunity from suithas already been abolished (see

Arthur JS Hall & Co (a rm)v Simons [2002] 1 AC 615).

As the arguments for barristersimmunity and expert witnessimmunity are similar, theexpert witness immunity shouldequally be abolished;

(2) In the past, an analogy has beendrawn between the immunitiesenjoyed by those whoparticipate in court proceedingsand the immunity grantedtowards a paid expert witness.It has been said that a similarimmunity against proceedingsfor negligence is necessary toenable experts to full theirduty to the court properly,particularly in relation tostatements made out of court inthe course of preparing evidenceto be given in court. However,the Supreme Court (majoritydecision) took the view that,since the removal of a barristersimmunity had not resulted inany diminution of the barristers

readiness to perform that duty,

it would be quite wrong toperpetuate the immunity ofexpert witnesses out of mereconjecture that they will bereluctant to perform their dutyto the court if they are notimmune from suit for breachof duty (Lord Phillips, atpage 57). Te Supreme Court,however, made it clear that theabolishment did not extend tothe absolute privilege that theyenjoy in respect of claims indefamation.


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Shannon Rajan

Senior Associate,SKRINE

UNCONSCIONABILIY:IS I A GROUND FOR AN INJUNCION

ON PERFORMANCE BOND?INRODUCION

In the landmark case of EssoPetroleum Malaysia Inc v. KagoPetroleum Sdn. Bhd. [1996] 1MLJ 149 (Esso Petroleum), theSupreme Court made a distinctionbetween an interlocutory injunctionto restrain the bank from makingpayment on an unconditionalperformance bond, and aninterlocutory injunction to restrainthe beneciary from calling on,or receiving money under theperformance bond. In the formercase, the Supreme Court took theview that the applicant could onlydo so if there was clear evidence offraud on the part of the beneciary

which came to the knowledge of

the bank. Whereas in the lattercase, it was held that, apart fromthe fraud test, the Court couldapply the principles laid down in

American Cyanamid Co v. EthiconLtd[1975] AC 396 (also known asthe balance of convenience test) indetermining whether or not to grantan injunction.

However, Esso Petroleum did

not deal with the question as towhether unconscionability couldbe a ground for such an injunction.Tere are differences between thebalance of convenience test and the

unconscionability test. Generally, onthe balance of convenience test, theCourt would consider the resultingharm likely to be suffered by theparties from the grant or refusal ofthe interlocutory injunction, and

where the justice of the case liesfor the period between the date ofapplication and the hearing properof the application. However, on theunconscionability test, the Court

will not look at the competinghardships likely to be suffered bythe parties as a result of the grant orrefusal of the injunction, but ratherat the events prior to the ling of theapplication, and in particular, theantecedent events leading to the callon the performance bond to see ifthe call made by the beneciary was

unconscionable.

Decided cases after Esso Petroleum,such as Bains Harding (Malaysia)Sdn Bhd v Arab-Malaysian MerchantBank Bhd & Ors[1996] 1 MLJ425, Te Radio & General radingCo Sdn Bhd v Wayss & Freytag (M)Sdn Bhd[1998] 1 MLJ 346 andElcorp Resources Sdn Bhd & Anor vPerbadanan Putrajaya & Anor[1999]

1 CLJ 558, reveal that the courtshave applied the unconscionabilitytest in an application for aninjunction to restrain the beneciaryfrom calling on or receiving money

under the performance bond.

However, in the year 2000, in thecase of LEC Contractors (M) Sdn.Bhd. (formerly known as LotteworldEngineering & Construction Sdn.Bhd.) v. Castle Inn Sdn. Bhd. &

Anor[2000] 3 MLJ 339 (LECContractors), the Court of Appealheld that, the fraud test was the onlytest that the Court had to considerin such an application, and thatthe balance of convenience test

was not applicable. Te Court ofAppeal further held that bad faithor unconscionable conduct by itself isnot fraud. In this case, the Courtof Appeal applied the fraud test,and dismissed the appeal againstthe decision of the High Court in

refusing to grant an injunction torestrain the beneciary from makinga call on the performance bond.

Te Court of Appeal decisionin LEC Contractorsis diffi cult toreconcile with the Supreme Courtdecision in Esso Petroleum. Teruling by the Court of Appealin LEC Contractorshas led toconicting decisions being made by

the Courts in applications for aninjunction to restrain a beneciaryfrom calling on or receiving moneyunder a performance bond, wheresome cases are seen to follow the

MALAYSIA


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Supreme Court decision in EssoPetroleumand the others followthe narrower approach in LECContractors. It is instructive to note,however, that insofar as the principlegoverning injunctions to restrain thebank from making payment undera performance bond is concerned,it is settled in that the only testapplicable is the fraud test. Teinconsistency lies in the applicableprinciples relating to an injunctionto restrain a beneciary from callingon or receiving money under aperformance bond.

Tis issue of these inconsistentappellate decisions was subsequentlydealt with by the High Court inthe case of Pasukhas Construction

Sdn Bhd & Anor v MM MilleniumHoldings Sdn Bhd & Anor[2009]6 CLJ 480 (Pasukhas)wherebythe Learned High Court JudgeHishamudin Mohd Yunus J (now

Justice of the Court of Appeal) heldthat, the ruling by the Court of

Appeal in LEC Contractorswas notconsistent with the Supreme Courtin Esso Petroleum, and applying theprinciples of stare decisis, the decision

of the Supreme Court should befollowed as it was a ruling of theapex court. Te Learned High Court

Judge went on to hold that it wouldnot apply the unconscionability testas it was not part of the Malaysian

jurisprudence in this area of the law.

It was thought that the decisionin Pasukhashas put to rest theconfusion brought about by theinconsistent decisions in LECContractorsand Esso Petroleum,and the question of whetherunconscionability is a ground for aninjunction to restrain a beneciaryfrom calling on, or receivingmoney under a performance bond.However, this is not so. Recently,Varghese George JC1 and Ramly

Ali JCA have given their decisionsto the effect that unconscionabilityis recognised as a ground for aninjunction to restrain the beneciaryfrom calling on or receiving moneyunder a performance bond.

Tis article will examine therecent Court of Appeal cases of

Malaysian Rening Company Sdn.Bhd. v Sumatec Engineering and

Construction Sdn. Bhd. [2011] 7 CLJ21 and Kejuruteraan Bintai KidenkoSdn. Bhd. v Nam Fatt ConstructionSdn. Bhd. & Anor[2011] 7CLJ 442 to obtain an insight ofthe development of the law oninjunctions relating to performancebonds in Malaysia.MALAYSIAN REFININGCOMPANY SDN. BHD. vSUMAEC ENGINEERING ANDCONSRUCION SDN. BHD.

Te appellant awarded therespondent a design andbuild contract for the sum ofRM47,846,688.00. Te respondentprovided the appellant a performancebond of RM4,784,668.80 for the

due performance of the contract.During the currency of the contract,disputes arose between the partiesinter aliathat the appellant hadreduced the scope of the respondents

works, which were valued atapproximately RM13 million, byremoving certain aspects of the worksfrom the original scope of works.

1 Varghese George JC recognised and applied the test of unconscionability inMMN Bina Sdn. Bhd. v Felda Properties Sdn. Bhd.[2011] 2 CLJ 100 (HC) and idalmarine EngineeringSdn. Bhd. v Kerajaan Malaysia ( Jabatan Kerja Raya Malaysia Cawangan erengganu)[2011] 2 MLJ 400 (HC).


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Te respondent duly completed theworks and the appellant conrmedthe same by the issuance of aprovisional acceptance certicate.Te appellant then made a claimfor back charges without anynotice of defects being given to therespondent to rectify such defects.Te respondent contended that theappellants action disregarded theterms of the contract. Te appellantproceeded to demand payment of theperformance bond. Te respondentapplied for an injunction to restrainthe appellant from calling on theperformance bond. Te respondentobtained an ex parteinjunction andthereafter the appellant applied toset aside the ex parteOrder. At theinter partes hearing, the High Court

allowed the respondents applicationfor an injunction and dismissed theappellants application to set asidethe ex parteOrder. Te respondentcontended that the appellantscall on the performance bond wasunconsciounable conduct on its part.

Te High Court inter aliaheldthat unconscionabilitycan be aground for the courts intervention

to restrain the making of paymentunder the performance bond andthere was suffi cient evidence toestablish the same. Te High Court

Judge noted that the Malaysian

courts accepted in principle thatunconscionabilityshould berecognised in law as a separateground for seeking injunctive reliefin the context of a demand on anunconditional performance bond;2however, the unconscionabilitytestis limited by the statement found inLEC Contractors:-

First of all we wish to pointout that the authorities we havereferred above clearly indicated thatin order to justify any injunctionto stop payment there must be clearevidence of fraud on the part of the

rst defendant which comes to theknowledge of the second defendant.Bad faith or unconscionableconduct by itself is not fraud.

Te High Court Judge distinguishedthe case of LEC Contractorsandheld that there was no justicationin principle or policy why theCourt should not assist a party

who approached the Court forintervention on the grounds ofunconscionabilityor mala de actson the part of the beneciary, whichif refused, could result in similar

or more damage and loss to anaggrieved party in a fraud context.

Te Court of Appeal, withoutcommenting on the High

Court Judges ndings and LECContractorsat all, held that evenif unconscionabilityprinciple

was applicable, the respondentmust establish a strong prima faciecase but not necessarily beyondreasonable doubt for the existenceof unconscionability by placingbefore the courts manifest or strongevidence of source degree in respectof the alleged unconscionableconduct complained of, not a bareassertion. Te Court of Appealfurther held that the additionalground of unconscionabilityshouldonly be allowed with circumspect

where events or conduct are ofsuch degree such as to prick theconscience of a reasonable andsensible man.

KEJURUERAAN BINAIKINDENKO SDN. BHD. v NAMFA CONSRUCION SDN.BHD. & ANOR

Te appellant was appointed bythe 1strespondent to carry outmechanical and electrical subcontract

works for the integrated customs,immigration and quarantine

complex in Johor Bahru. Te partiesentered into a contract for thesaid works to which the appellantobtained 2 bank guarantees infavour of the 1strespondent for


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the due performance of the works.Differences arose between theparties and the appellant ledan action and an application forinterlocutory injunction to restrainthe 1stdefendant from makinga demand on the 2 guarantees.Despite the ling of the application,the 1strespondent called on bothguarantees.

Te appellant contended in the HighCourt that it had fully performedits obligations under the underlyingcontract as evidenced by theCerticate of Practical Completion.It was alleged that the 1strespondentacted unconscionably in calling onthe guarantees as it had not fullledthe condition precedent under

clause 24(c) of the contract wherebya certicate had to be issued by the1strespondents employer to say theappellant had breached the contractbefore a call on the guaranteescould be made. Te 1st respondentargued that the guarantees wereunconditional performance bonds

which the 2nddefendant was obligedto pay forthwith regardless of anycontractual disputes between parties.

Te High Court held that it wasbound by the Court of Appealsdecision in LEC Contractorseventhough it expressed a preferencefor the unconscionabletest.

Accordingly, it dismissed theappellants action and application forinjunction as there was no issue offraud.

Te Court of Appeal held that inany application for injunctive relief,the court must rst determine

whether it is to restrain the issuerfrom making payment on theperformance bond to the beneciaryor to restrain the beneciary frommaking a call or demand on theperformance bond.

Te Court of Appeal held that if theperformance bond is unconditional,it is independent of any primarycontract between the parties andit is not open to the court toenquire into any breach of theprimary contract and the issueris obliged to pay the beneciary

without any proof or condition andnotwithstanding any contestationor protest from any party. Te only

exception to this rule is on theground of fraud of which the issuerhas notice. Te fraud must be onthe performance bond itself and notother documents (Esso PetroleumandLEC Contractorsapplied).

Te Court of Appeal held thatboth Esso Petroleumand LECContractorsspecically referredto an injunction to restrain anissuer from making payment on anunconditional performance bondbut not an injunction to restrain thebeneciary from making a demandor call on the performance bond.Te Court of Appeal agreed withVarghese George JCs observationsin Sumatec Engineering andConstruction Sdn. Bhd. v Malaysian

Rening Company Sdn. Bhd.3andidalmarine Engineering Sdn. Bhd.v Kerajaan Malaysia4and held thatthe statement by Mokhtar Sidin JCAthat Bad faith or unconscionableconduct by itself is not fraudin LECContractorshad been misinterpretedto mean that unconscionabilityisnot a distinct ground for courtsintervention. Te courts focusthere was on what did or did not

2 See grounds of judgment of Sumatec Engineering and Construction Sd. Bhd. v Malaysian Rening Company Sdn. Bhd.[2010] 1 LNS 1355.3 Ibid.4 [2010] 1 LNS 1361.


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constitute fraud and whether fraudhad been pleaded or proved.

Te Court of Appeal also referredto Satriadesa Corporation Sdn. Bhd.v enaga Nasional Berhad,5wherePrasad Sandosham Abraham JCgranted an interlocutory injunctionto restrain a claim or demandon a performance bond made bythe beneciary on the ground ofunconscionable conduct on its partin rushing to make a call shortlyafter the said performance bond hadbeen renewed at its request. TeLearned Judicial Commissionerfollowed the Court of Appeal caseof Elian and Rabbath (trading asElian and Rabbath v Matsas and

Matsas); JD Mclaren and Company

Ltd and Midland Bank Ltd6 andheld that the interest of justicecalled for the courts interventionto grant an injunction to prevent

what might be irretrievable injustice,even where fraud was not pleaded.

Although the Court of Appeal gave aneutral treatment towards the HighCourts application of irretrievableinjustice, that principle may wellbe the exceptional rather than the

norm in the context of performancebonds.

CONCLUSION

Te two recent cases clearlydemonstrate the judicial will torecognise unconscionabilityas aseparate and distinct ground torestrain a beneciary from making acall on or receiving money under aperformance bond.

Writers e-mail:[email protected]

Editorial Note:

In the recent English decision ofSimon Carves Ltd v Ensus UK Ltd[2011] EWHC 657 (CC), it washeld that, fraud was not the only

ground for an injunction, althoughthe Court agreed that the principlesapplicable to an application for aninjunction to restrain the bank from

paying out the monies and to restrainthe beneciary from seeking paymentunder a bond are the same. TeLearned Judge held that AmericanCynamid guidelines were applicableto such applications, but the seriousissues to be tried threshold is higherthan the one applicable to other cases.

Although the Malaysian positiondiffers from that in England in this

area of the law, it is interesting tonote from this case that it is perhapsa sign of a shift away from thetraditionally rigid criterion for aninjunction in bond cases, namely

fraud, adopted by the English Courts.(see Edward Owen Engineering v.Barclays Bank International [1978]QB 159 and IE Contractors Ltd v.Lloyds Bank plc and Radain Bank[1990] 2 Lloyds Rep 496.)

5 [2010] 4 CLJ 877.6 Lloyds LR 2 [1966] 495. Roskill LJ in Howe Richardson Scale Co. Ltd v Polimex-Cekop [1978] 1 Lloyds Rep 161 described the case as a very special case.


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Wilfred AbrahamPartners,Zul Raque & Partners

Suhanthi SivanesanAssociate,Zul Raque & Partners

Construction Industry Paymentand Adjudication Bill 2011 -

Will the Bill improve cash ow in Malaysia?INRODUCION

Malaysia stands out as one ofthe last remaining commonlaw jurisdictions withoutan adjudication legislation.Statutory Adjudication haslong been introduced in theUnited Kingdom, certain statesin Australia, New Zealand, andSingapore to address issues onpayment and as a quick disputeresolution mechanism for theconstruction industry. Malaysiahas now joined the club with theConstruction Industry Paymentand Adjudication Bill 2011(the CIPA Bill) moving throughParliament and should receiveRoyal Assent in due course. Te

effective date of the legislationhas yet to be announced. Telegislation has received supportfrom some quarters but theuncertainty is still there, as withany new legislation. Te objectiveof the legislation is to improvecash ow to the contractors andto ensure that those whom haveundertaken construction contractshave enough capital to embark on

projects. Te CIPA Bill is expectedin laying down the basic paymentprovisions of the constructioncontracts and for providing ascheme of adjudication for parties

to obtain a quick, interim decisionin a payment dispute. As can beenseen from the table, the CIPA Billis silent on whether parties couldcontract out of the CIPA Bill.However, Section 40 of the CIPABill allows the minister to exemptany person or class of persons orany contract, matter or transactionfrom all or any provisions of theCIPA Bill.

SCOPE OF HE CIPA BILL

Te legislation should apply to allconstruction contracts made in

writing that relates to constructionwork carried out wholly or partlywithin the territory of Malaysia.Both the government and the private

sector are bound by the CIPA Bill.Te legislation does not apply toproposed residential properties,

which are constructed for ones ownuse and shall not exceed 4-storeyhigh. In the United Kingdom,the Local Democracy, EconomicDevelopment and Construction Act2009 (the LDEDCA) came intoeffect on 1st October 2011, theaim being to iron out some of the

issues that have arisen pursuant tothe Housing Grants, Constructionand Regeneration Act 1996 (theHGCRA). Te LDEDCA hadrepealed the requirement for

contracts in writing and this maylikely increase the disputes referred toadjudication in the United Kingdom.

Te proposed legislation in Malaysiadenes construction work in a wideambit and covers, among others, thebuilding industry, the oil and gasindustry, the petrochemical industry,telecommunication, utilities,infrastructure, supply contractsand consultancy contracts. TeUnited Kingdom and the Singaporelegislations, in this context, seem tohave excluded the oil and gas andpetrochemical sector. Te meaningof construction work in SingaporesBuilding and Construction IndustrySecurity of Payment Act 2004follows closely to the meaning of

construction operations in Section105 of the HGCRA, with theexception that supply contracts arenot included within the meaningof construction operations in theHGCRA.

OHER FEAURES OF HELEGISLAION

Te legislation, under Section 35,

prohibits the practice of pay-when-paid and conditional payments.Te practise has been quite popularin Malaysia and has led to greathardships to contractors. Te


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MALAYSIA

United Kingdom and Singaporehave both outlawed this practice.

All work done and all servicesrendered must be paid upon the

work being done and the servicesbeing rendered. All contractorsmust beef up their nancial capacityto pay subcontractors in a timelymanner even if they are not paid bytheir employer. Tis will make casesuch as in Asiapools (M) Sdn Bhd vIJM Construction Sdn Bhd & Ors[2010] 3 MLJ 7, CA, redundant andnot good law anymore.

Te legislation will provide adefault mechanism that establishesa payment process and timeframesfor contracts that do not stipulateappropriate payment terms. Te

CIPA Bill, under Section 36,provides that the frequency ofprogress payment for construction

work and construction consultancyservices would be monthly and forsupply contracts, it would be uponthe delivery of supply. Te duedate for payment for all the abovecontracts would be thirty calendardays from receipt of an invoice.

It cannot be disputed thatadjudication costs are a majorconsideration in deciding whetheror not to commence adjudicationproceedings. Te proposed Section

18 envisages that the adjudicatorshall have the power, amongst others,to order the adjudication coststo follow the event and to x thequantum of costs. It has to be notedthat the HGCRA is silent on theadjudicators power to make ordersfor adjudication costs. Te objectiveof this Section is to allow smallerconstruction companies to pursuetheir claims without having to spendtoo much money in the process.

It is also provided under thelegislation that the power of anadjudicator to order costs shall prevailover any agreement made by theparties prior to the commencementof the adjudication proceedingsby which one party agrees to pay

the other partys costs or bear theadjudications fees and expenses. Onemight ask for the rationale behindthis clause. It is thought that this isdue to the history behind the costsallocation clauses in the UnitedKingdom, which were known asthe olent clauses after the case ofBridgeway Construction Ltd v olentConstruction Ltd [2000] CILL1662, in which the court upheld such

contractual provision and held that itshould not interfere with the contractas parties freely negotiated them.However, the case of Yuanda (UK)Co Ltd v WW Gear Construction

Limited [2010] EWHC 720 (CC)reverses this position whereby thecourt held that olent clauses werecontrary to the HGCRA as theydiscourage parties from exercisingtheir right to adjudicate. However,LDEDCA by inserting Section 108Ainto the HGCRA, is attempting toremedy the situation by requiring thecosts payable.

RECOVERY OF PAYMEN ONADJUDICAED SUM

Adjudicators are as per the proposedSection 12 required to decide adispute within 45 days from serviceof a response to the adjudicationclaim. We are of the view thatthe time limits proposed are very

ambitious and the parties andadjudicators and parties will havesome diffi culty observing such tightdeadlines. Te CIPA Bill also seeksto provide remedies for the recoveryof payment upon the conclusion ofthe adjudication process in additionto other remedies such as a right toreduce the rate of work progress orto suspend work under Section 29 ofthe CIPA Bill or even to secure direct

payment from the principal underSection 30 of the CIPA Bill.

Tat being so, the party aggrievedmay also apply to the High Court


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under Section 15 of the CIPA Billto set aside the adjudicated decisionon various grounds set out in theCIPA Bill or stay the adjudicationdecision under Section 16 of theCIPA Bill pending the application toset aside. Te grounds for applicationfor stay arise when an application toset aside the adjudication decisionhas been made or the subjectmatter of adjudication decision ispending nal determination bycourt or arbitration. Tis raises animportant question on whetherthe purpose of the CIPA Bill willbe defeated where on one handparties are allowed to concurrentlyrefer a dispute to adjudication,arbitration or the court under theproposed Section 37 of the CIPA

Bill and on another hand a partymay apply to stay an adjudicationdecision if the subject matter of theadjudication decision is pendingnal determination by arbitrationor the court under Section 16(1)(b). Tis will lead to the losing partyavoiding the adjudicated decision.Te options available to the HighCourt would be either to grant thestay, or order whole or part of the

adjudicated amount to be depositedwith Kuala Lumpur Regional Centrefor Arbitration (KLRCA) or makeany other orders it thinks t. It willbe interesting to see the attitude of

the High Court towards adjudicationdecisions.

ANICIPAED DIFFICULIES

Tere is some concern over theapplication of the CIPA Bill, whichis conned to payment disputes only.It is provided in Section 7 of theCIPA Bill that an unpaid party ornon-paying party may refer a disputearising from a payment claim toadjudication. Te CIPA Bill, in thissense, did not follow the HGCRA,

which covers all disputes and notrestricted to disputes on issues ofpayment only whereas in Singapore,the right to commence adjudicationonly accrues if the claimant is unpaidof the response amount which he

has accepted. Many disputes areinvariably linked. A claim can bein the form of assertion of right byone party as can be seen in the caseof David & eresa Bothma DABBuilders v Mayhaven HealthcareLimited [2007] EWCA Civ 527,

where the contractor sought anumber of remedies, inter alia, forthe adjudicator to make a nding offact over the date for completion of

the contract. However, it is providedfor in the CIPA Bill under Section27(2) that parties to an agreementmay extend the adjudicators

jurisdiction to decide on any

other matter that is not within theadjudicators jurisdiction.

Section 108 (1) of the HGCRAsimply state a party has the rightto refer a dispute arising under aconstruction contract and the termdispute includes any difference.Te interpretation of the worddispute had invariably resulted invarious case laws which have raisedthe issue of an adjudicator actingoutside his jurisdiction on the basisof there being no dispute. Te caseof Amec Civil Engineering Ltd vSecretary of State for ransport[2004] EWHC 2339 (CC), isone authority on how and whena dispute can arise and laid downseven propositions in relation to the

interpretation of the word dispute.It is expected that issue on theinterpretation of the word disputemay arise under the CIPA Bill arisingfrom a payment claim.

Tere is also the issue of the CIPABill envisaging that an unpaid partyor non-paying party may refer onlyone dispute at a time arising froma payment claim to adjudication

although the CIPA Bill providesfor consolidation of adjudicationproceedings. Similarly in the UnitedKingdom, the HGCRA envisagesthat only one dispute will be referred


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to an adjudicator at one time asSection 108(1) refers to a disputeand not to disputes. Sometimes aparty may be referring a number ofdisputes to the adjudicator. If they allrelate to what sum may be due, thereis only one dispute. Tis view wasconrmed in Fastrack ContractorsLimited v Morrison ConstructionLimited [2000] EWHC echnology177 and David & eresa BothmaDAB Builders v MayhavenHealthcare Limited [2007] EWCACiv 527. And, recently in the caseof Witney own Council v BeamConstruction Ltd [2011] EWHC2332 (CC), it was held that adispute can comprise a single issueor any number of issues within it.

Whether or not there are one or

more disputes is a question of fact.

It is hoped that, if ever, there isa confusion over the multipledisputes issue for adjudicationin Malaysia, the above cases willprovide as useful guidance as to

whether or not dispute referred foradjudication under the CIPA Billconstitutes one or more disputes.Perhaps, the referring parties shall

set out expressly in the notice ofadjudication the various nexusbetween the various disputes soughtand it would certainly be prudentfor adjudicators deciding under the

CIPA Bill to clearly address in theirdecision that there was a suffi cientnexus among the various issuesreferred for adjudication as otherwisethe decision could be opened forchallenge for want of jurisdiction.

ADJUDICAION AUHORIY

Te CIPA Bill includes for theentire adjudication process to beadministered and managed bythe KLRCA. Te KLRCA willbe responsible to the setting ofthe competency standard and thecriteria required of an adjudicator,the determination of the standardterms of appointment of anadjudicator and the fees and toprovide administrative support

for the conduct of adjudication.Te KLRCA has prepared an

Adjudication raining Programmeto enable proper certication for allfuture adjudicators. It is mandatoryfor all persons who are interestedin providing adjudication servicesto enrol in the programme. Tose

who have successfully completedthe KLRCA Adjudication rainingprogramme will be awarded with

a Certicate of Adjudication. Tecriteria for adjudicators would beamongst others, a relevant degree ordiploma in the related eld, 10 years

working experience in, or relating

to, the building and constructionindustry in Malaysia and successfulcompletion of the KLRCA

Adjudication raining Programme.Te proposed legislation, however,does allow for the parties to appointany person to adjudicate a dispute byconsensus.

CONCLUSION

Te proposed legislation is thestarting point for a quick resolutionfor unpaid claims in the industry.However, not all have readily

welcomed this legislation. Tereare various concerns still amongstEmployers, in particular, that they

would have many claims, to contendwith. Tere have been suggestions

that some parties will apply tothe Minister in charge to exemptthemselves from complying withthe legislation. We will have to

wait and see if it does come to pass.However, for construction disputes,this is a new era as it is not in thenature of those in the industry tocommence recovery claims whilst theproject is on-going. Hence, it willbe interesting to see if this proposed

legislation achieves its full potential.We are of the view that with thepassage of time, the industry willaccept it and it will achieve itsintended purpose.


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BRIEF COMPARISON BEWEEN HE LEGISLAION IN ENGLAND, SINGAPORE AND MALAYSIA

Features

Sectors that arecovered

ConstructionAgreement

Disputes that arecovered

imeline forAdjudicationDecision

Costs of adjudicationproceedings

Malaysia-ConstructionIndustry Payment andAdjudication Act 2012(CIPAA)

Construction Contract -construction work contractor construction consultancy

contract. Very wide coveringalso oil and gas industry,petrochemical industry,telecommunication,utilities, infrastructure,supply contracts, projectmanagement, etc (Section 4).

Agreement must be inwriting (Section 2).

Only payment disputes(Section 7).45 Days (Section 12).

Adjudicator is empowered toorder costs (Section 18).

Singapore -Building andConstruction IndustrySecurity of Payment Act2004

Construction Contract-construction work contract orsupply of goods or services.

Not so wide as it excludes oiland gas, chemical (Section 3).

Agreement must be inwriting (Section 4).

Only payment disputes(Section 12).

7 Days if Respondent failedto make payment response/adjudication response and14 Days in any other case(Section 17).

Adjudicator is empowered toorder costs (Section 30).

England- HousingGrants Regeneration andConstruction Act 1996(HGCRA 1996)

Construction operations.It also includes contractsfor professional services in

relation to constructionoperations. Not so wide as itexcludes oil and gas, chemical,supply contracts, etc (Section104 and Section 105).

Agreement need not be inwriting (Repealed Section107).

Any disputes (Section 108).

28 days (subject to any agreed14 days extension) (Section108).

Adjudicator not empoweredto order costs unless thecontractual provision providesfor it (Section 108A).


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Features

Contracting outprovisions

ConditionalPayment Clause

Stay Provisions

AdjudicationAuthority

Malaysia-ConstructionIndustry Payment andAdjudication Act 2012(CIPAA)

No express provision.

Prohibits conditionalpayment (Section 35).

May apply for stay ofadjudication decision(Section 16).

Te Kuala Lumpur RegionalCentre for Arbitration(Section 32).

Singapore -Building andConstruction IndustrySecurity of Payment Act2004

Expressly prohibitscontracting out (Section 36).



Te Singapore MediationCentre (Section 28).

England- HousingGrants Regeneration andConstruction Act 1996(HGCRA 1996)

Te Act contains a numberof mandatory provisions

which must be provided in

every construction contract.If the contract does notcomply with the mandatoryprovisions or if they areinconsistent, the Scheme forConstruction Contracts willapply. (Section 108).



Tere are many of themaround and parties are free toapproach them, such as the

Association of IndependentConstruction Adjudicators(AICA), the echnologyand Construction Solicitors

Association (eCSA), etc.


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William Kennedy

Senior Vice President/ Managing DirectorAsia, Middle East, Africa Hill International

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construction law digest april 2012

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