Can CIPAA apply when the contract is subject to foreign law?

If a construction contract is subject to foreign law, and parties have submitted to the jurisdiction of a foreign court, can CIPAA apply?

YES. CIPAA is a statute, and will apply to payment disputes arising from written construction contracts whereby the works are wholly or partly carried out in Malaysia. There is simply no contracting out of CIPAA.

Even when parties submit to the jurisdiction of a foreign Court, it does not oust CIPAA, or the jurisdiction of the High Court to enforce CIPAA decisions.

In Comsite Projects Ltd v Andritz AG, the contract states that all disputes are subject to the exclusive jurisdiction of the Austrian Courts, and that Austrian law shall apply. Notwithstanding such a clause, the UK Court enforced the adjudication decision. However, any further and final dispute arising between the parties would then have to be resolved by the Austrian Court applying Austrian law.

In that sense, entering into a contract that is subject to foreign law and submitting to a foreign jurisdiction would only mean that the final dispute would have to be resolved following the clause. CIPAA which provides temporary finality continues to apply between the parties in the meantime.

Kheng Hoe Advocates advises clients on arbitration, litigation, adjudication (CIPAA) and mediation of construction disputes. We can be reached at khenghoe@khenghoe.com. 

Is breach of natural justice a defence to enforcement of Adjudication Decision?

S.15 CIPAA provides that breach of natural justice or excess of jurisdiction are among grounds to set aside an Adjudication Decision. However, if a party fails to apply to set aside the decision, can he still rely on these grounds to resist the enforcement of an Adjudication Decision?

In Inai Kiara Sdn Bhd v Puteri Nusantara Sdn Bhd, the Court of Appeal considered precisely this question. In that said case, Inai Kiara received a favourable Adjudication Decision which it sought to enforce in the High Court. Puteri Nusantara did not apply to set aside the Decision, but argued that the Adjudicator had nevertheless acted in excess of his jurisdiction. Excess of jurisdiction is a ground to set aside the decision under s.15(d).

The learned Judge agreed that the Adjudicator had acted in excess of his jurisdiction, and therefore refused to enforce the decision. Dis-satisfied, Inai Kiara appealed. The issue to be decided by the Court of Appeal was whether a party can rely on excess of jurisdiction (under s15(d) CIPAA) when it did NOT apply to set aside the decision under s.15.

The Court of Appeal disagreed with the High Court Judge. The learned Mary Lim JCA said that a party cannot “invoke any of the grounds set out in s.15(a) to (d) in opposition to an application under s.28 (for enforcement) without at the same time, filing an application under s.15 itself to set aside the adjudication decision on any of those grounds”.

With due respect, this decision may be introducing an unnecessary technicality to CIPAA.

For example, s.15(a) CIPAA says that a decision can be set aside if it was procured through fraud and bribery. Does that mean that if a party can show evidence of fraud and bribery, the decision must still be enforced if for any reason whatsoever, his lawyer failed to apply to set aside the decision under s.15(a) CIPAA? Surely the enforcement of any decision that was procured through fraud and bribery would be patently against public policy.

The general principle of law is that the courts would not assist any party who had participated in unlawful/illegal acts. Surely the Courts should not impose a technical requirement for the party to make the formal application before taking cognisance of such acts (if indeed proven).

And if the Courts were to take cognisance of s.15(a) without an application to set aside, then clearly the factors set out in s.15(b) to (d) ought also be taken into account.

Nevertheless, the above is just my view on the matter. The Court of Appeal has clearly taken a different view of the same. Such being the case, one now must necessarily apply to set aside a decision if any of the factors of s.15(a) to (d) come into play, otherwise they would not be considered as legitimate defences against an enforcement application under s.28.

Kheng Hoe advises clients on arbitration, litigation, adjudication (CIPAA) and mediation of construction disputes. We can be reached at khenghoe@khenghoe.com.

Are oral amendments of written contracts covered by CIPAA?

Section 2 CIPAA provides that it applies to “every construction contract made in writing“. The AIAC had issued a Circular No 03 to define what it understands to be a contract made in writing, namely:

“1. There is a contract in writing:

a) If the contract is made in writing (whether or not it is signed by the parties);

b) if the contract is made by exchange of communications in writing; or

c) if the contract is evidenced in writing.

2. Where parties agree otherwise than in writing by reference to terms which are in writing, they make a contract in writing.

3. A contract is evidenced in writing if a contract made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the contract.”

If a contract is not made in writing, then CIPAA would not apply and parties would have to resort to litigation to resolve their disputes. However, what if a construction contract was first made in writing, but subsequently amended orally? Would this oral amendment to the construction contract then fall under CIPAA, considering that the initial contract was in writing?

This question arose in Carillion Construction v Devonport Royal Dockyard. In that case, there was a written contract under which Carillion would be reimbursed its costs and earn a fee based on a gain-share/pain-share arrangement. A gain-share/pain-share arrangement is one where any underspend compared to the target budget would be shared by the parties jointly, conversely any over-spend would be contributed by the parties jointly. However, Carillion alleges that this written contract was subsequently amended orally and pursuant to the amendment, the gain-share/pain-share arrangement was abandoned. Devonport refused to pay pursuant to the “amended” arrangement and the matter was then referred to adjudication.

The adjudicator found in favour of Carillion and decided that there was a binding amendment to the written contract. Dis-satisfied, the employer took the matter to Court.

The learned judge held that the UK Construction Act (then) did not provide for adjudication in respect of oral contracts. Therefore, an oral variation to a written contract would be excluded. (Note: Subsequently, the Local Democracy, Economic Development and Construction Act repealed the need for contracts to be in writing in order to be subject to adjudication. However, Malaysia still requires a written contract).

Taking the cue from Carillion, it would seem that once a written contract is amended orally, then the entire contract would fall outside the purview of CIPAA. Of course, as CIPAA relates only to payment disputes, the amendment would logically have to affect the terms of payment, whilst an oral amendment of other terms of the contract may nevertheless not lead to its exclusion from CIPAA.

Kheng Hoe Advocates advises clients on arbitration, litigation, adjudication (CIPAA) and mediation of building and construction contract disputes. We also publish the Construction Law Malaysia Youtube Channel. We can be reached at khenghoe@khenghoe.com.