Image credit: https://www.tcm.com/tcmdb/title/93978/trouble-in-paradise/#overview (Scene from Trouble in Paradise, 1932)
The Federal Court recently (12.01.2024) released its Grounds of Judgment for Anas Construction v JKP [Civil Appeal No.: 02(f)-3-01/2023(P) [Majority]. There is a very strong dissenting judgment written by Mary Lim FCJ Anas Construction v JKP [Civil Appeal No.: 02(f)-3-01/2023(P) [Minority].
The majority decision causes some consternation. On the facts, I am of the opinion that the minority decision will be on the right side of history.
The construction contract
Anas was the main contractor for a project to construct a 24-storey block of flats.
The construction contract was terminated on 15.05.2017.
On 09.06.2017, Anas submitted its revised Final Claim for professional fees incurred. JKP did not pay.
Adjudication proceedings
Anas delivered a Payment Claim dated 06.03.2019. JKP delivered a Payment Response dated 22.03.2019 denying Anas’s claim.
A Notice of Adjudication was duly-issued and an adjudicator was appointed.
The parties exchanged their Adjudication Claim, Response and Reply.
The contents of the AC, AResp and AReply
JKP outlined its reasons for denying Anas’s claim. JKP also cited Clause 36.5 of their construction contract as a “crucial provision”, together with several other clauses.
The Adjudicator’s Decision
The learned Adjudicator dismissed JKP’s assertions and allowed Anas’s claim. The Adjudicator determined that Clause 36.6 of the construction contract was most applicable, given the facts.
Application to enforce and set-aside the Adjudication Decision
Anas applied to enforce the Decision as a Judgment, whereas JKP applied to set-aside the Decision.
The thrust of JKP’s claims would be that there was (i) a denial of natural justice and that the Adjudicator had (ii) acted in excess of jurisdiction.
The HC and CA
The HC dismissed JKP’s allegations. It held that this issue of “non-pleading” of Clause 36.6 was not fatal. It was sufficient for the entire Construction Contract to have been “pleaded”.
The CA however, reversed the HC. The CA held that the Adjudicator acted in excess of his jurisdiction. Essentially, this issue of Clause 36.6 had purportedly not been “pleaded” in the Payment Claim. As such, the CA held this to be fatal. The CA held that the Adjudicator had “gone on a frolic of his own” in determining Clause 36.6.
The Federal Court
Anas, being dissatisfied with the CA’s decision, applied for leave to appeal.
The 3 questions were (paraphrased) as follows:
Do the strict rules of pleadings apply in CIPAA 2012?
Does View Esteem v Bina Puri prohibit an adjudicator from referring to any other clauses in a construction contract?
Does an Adjudicator’s determination on a clause (without inviting the parties to submit on it) amount to a denial of natural justice?
The majority declined to answer the questions posed.
In a minority judgment, Her Ladyship Mary Lim held that all 3 questions ought to be answered in the negative.
The majority judgment
In a nutshell, the majority judgment held that the jurisdiction of the Adjudicator would be limited by S. 27 CIPAA 2012 (paras. 22-24). Upon reading S. 27, the jurisdiction would be limited to SS. 5 and 6 CIPAA 2012, which deals respectively with the Payment Claim and the Payment Response.
The majority held that with the mandatory word “shall” being utilised in these provisions, it would have determinative effect (paras. 27-33). As the Adjudicator determined the issue on Clause 36.6 (which the majority held to not have been in the Payment Claim), it was determined that this was an excess of jurisdiction (para. 37-40).
The majority held that this was in excess of jurisdiction (para. 42).
On the issue of denial of natural justice, the majority held that the Adjudicator, by not inviting submissions on this issue of Clause 36.6, had breached the principles of natural justice (paras. 43-49). The majority determined that it was unnecessary to determine the questions posed to decide the appeal, which was dismissed with costs (para. 51-52).
The minority judgment
Respectfully, I suggest that the minority judgment is to be preferred.
Mary Lim FCJ, with Her Ladyship’s unrivalled pedigree in construction-related matters, set-out the jurisprudential background to CIPAA 2012 (paras. 20-36).
The 1st Question: The “pleadings” point
Her Ladyship then considered the first question (whether the strict rule of “pleadings” were applicable in Adjudication). Her Ladyship answered this in the negative.
Her Ladyship noted that there are no “pleadings” in adjudication proceedings. CIPAA 2012 and ROC 2012 are different creatures for different schemes and it would be wrong to conflate the two (paras. 38-51). Crucially, Her Ladyship observed:
[51] One must understand and appreciate the statutory adjudication regime as a whole, how it operates and the conditions of application including the timelines involved, as discussed above, such that the specificity of the contract provisions need not even be exhaustive. In fact, it may even be the wrong provisions cited and the adjudicator may or may not agree with those provisions; may or may not deal with any or all the provisions cited; and/or the provisions cited may not even be of any concern to the responding party; as was the case in the present appeals.
Her Ladyship further noted that on the facts, the CA had acted per incuriam. Anas had identified Clause 36.6 in its Payment Claim, given that several letters referencing Clause 36.6 had been annexed to the Payment Claim (paras. 52-54).
Her Ladyship then undertook an analysis of the Australian and Malaysian approach to such matters of interpretation (paras. 55-67) and concluded:
[68] In my view, non-citing or even the citing of a wrong clause or provision of a construction contract does not and cannot render the adjudicator bereft of jurisdiction.
[69] An examination of the payment claim and even the ensuing documents confirms the above analysis. In fact, I must add that all along, clause 36.6 was already cited in the payment claim and adjudication claim. Had these documents been properly examined, the Court of Appeal would clearly not have come to the decision that it did.
[70] In this regard, care must be taken to scrutinise the claim and its accompanying documents, appreciate and understand their contents and not merely cast a cursory view over them.
Her Ladyship then examined the documentation before the Adjudicator (paras. 71-90) and held that the issue of Clause 36.6 had actually been raised:
[81] The letters show that the appellant had actually invoked clause 36.6 of the Construction Contract amongst several other provisions - see letters dated 16.1.2017 and 17.1.2017.
Her Ladyship also noted that the Construction Contract had been “pleaded” (para.86).
[86] To this, I must further add that the whole construction contract was already before the adjudicator, “pleaded” as it were and it will be naïve to suggest that the adjudicator is not entitled to look to the whole Construction Contract for all its full terms and effect. More so when he was dealing with the payment claim for professional fees in the context of a terminated contract.
Upon this, Her Ladyship determined that the CA was wrong to reverse the HC’s decision and to further state that the Adjudicator had gone on a “frolic of his own” (para. 89).
The 2nd Question: The interplay with View Esteem v Bina Puri
Her Ladyship then considered the 2nd Question, against the backdrop of her finding that Clause 36.6 had been “pleaded”. Her Ladyship respectfully disagreed with the CA and stated:
[95] With respect to the Court of Appeal, that conclusion is erroneous. Aside from my earlier deliberations on the issue of “pleadings” in adjudication, that there is none and certainly not “pleadings” with the attendant principles and ramifications under the Rules of Court 2012 and the relevant caselaw, I find that the Court of Appeal has conflated subject matter jurisdiction as provided under section 27 with documentational and procedural requirements under section 5.
Her Ladyship then interpreted View Esteem in its correct context:
[97] The dicta in View Esteem has been mis-appreciated by the Court of Appeal. The Federal Court was actually correcting the reasoning of the High Court which had taken the view that the adjudication claim and adjudication responses were mere formal manifestations of the dispute already set out in the payment claim and the payment response. At the High Court, the appellant was disallowed from raising defences or issues in the adjudication response which were not raised in the payment response. In fact, the appellant had not served any payment response and under section 6(4) was deemed to have denied the claim. The Federal Court disagreed, holding that the appellant was entitled to raise any defence or issue not raised earlier as the existence of the two-stage process did not warrant giving a reduced importance to the adjudication pleadings and a greater, if not overriding significance to the initial documents, namely the payment claim and the payment response, under sections 5 and 6.
[98] The effect of this Court’s decision in View Esteem in respect of section 27 is simply this – that the adjudicator’s jurisdiction in relation to any dispute is limited to the matter of the claim which was referred to adjudication under sections 5 and 6. The subject of the claim is the limiting factor. This was explained by the Federal Court to refer to the cause of action identified by reference to the applicable clause of the construction contract.
Her Ladyship concluded that the CA had fallen into an error by conflating the subject matter with documentational requirements. The 2nd Question would also be answered in the negative (paras. 91-102).
The 3rd Question: Was the Adjudicator’s decision on Clause 36.6 without inviting submissions a breach of natural justice? 103
On this issue, Her Ladyship stated that factually, Clause 36.6 was already before the parties.
For the development of the law, Her Ladyship noted that the right to be heard is, generally, a public law right (para. 106-108). Upon an examination of Commonwealth caselaw, Her Ladyship noted that if one was to raise such an argument, the issue upon which the Adjudicator determined the matter must be substantive (paras. 109-114, 117-125). Her Ladyship ultimately concluded that the Adjudicator, by referencing Clause 36.6, did not have the same element of materiality or significance.
In-line with this, Her Ladyship determined that the 3rd Question would also be answered in the negative (paras. 136-145):
[145] The learned adjudicator was also perfectly entitled to reach the conclusions that he did, and it is obvious reading the adjudication decision that he had carefully and almost exhaustively evaluated the evidence led against the Construction Contract and applying the legal principles to the evidence before concluding that the appellant’s claim was proved.
In concluding, Her Ladyship answered all 3 questions in the negative, in favour of Anas. She allowed the appeals with costs and set-aside the CA’s decision.
Comment and critique
The majority decision is difficult to reconcile. The majority has taken a very strong and disciplined stance towards adjudication proceedings, which may be difficult to reconcile. As Mary Lim FCJ noted, adjudication is meant to be a “quick and dirty” process of giving “life” back to the underlying contract (see para. 22, quoting from UDA Holdings v Bisraya Construction).
Respectfully, the majority decision also contains several factual anomalies. The issue on Clause 36.6 has, as expressed by Mary Lim FCJ, been raised via the letters (which were attached to the Payment Claim). Additionally, the entirety of the contract has been pleaded.
In the High Court cases of Intraline Resources v Exxonmobil Exploration [2017] MLJU 1299 and ESP Synergy v KB Enviro [2018] 8 MLJ 516, Nazlan J noted that even without a pleading on a specific clause, the Court is still obligated to look into the entirety of the contract:
[53] The fact that the parties did not specifically plead this particular clause is immaterial in the context of this instant case considering the nature of the dispute, which would have required examination of the entirety of Contract at any rate, as I have emphasized earlier.
His Lordship quoted the FC decision of KEP Mohamed Ali v KEP Mohamed Ismail [1981] 2 MLJ 10 to bolster His Lordship’s position.
Similarly, in Intelek Timur v Future Heritage [2004] 1 MLJ 401, the FC emphasised that the failure of an arbitrator to consider the contract in its entirety entitled the FC to set-aside the Arbitration Award.
Refer also:
Simfoni Maya v KPerak Implementation [2023] MLJU 67 (para. 68)
China Pacific v Best Re(L) [2017] MLJU 2238 (para. 38)
Against this backdrop, the majority judgment is difficult to reconcile. It represents a major hurdle to the disposal of adjudication proceedings in a timely manner.
Mary Lim FCJ noted that Adjudicators work under immense time pressure. It will be noted that an Adjudication Decision delivered outside the 45-working day period is null and void (Encorp Iskandar v Konsortium [2023] MLJU 1984).
There is also a difficult tension with View Esteem v Bina Puri (2018). What should happen if a party outright refuses to deliver a Payment Response? Should that prejudice them, so much so that the Adjudicator has no right to determine an issue that has not been raised?
When one reads both judgments in the context of business efficacy, I respectfully suggest that the minority judgment ought to prevail.
Conclusion
The majority judgment in Anas v JKP raises difficult questions that Adjudicators will need to grapple with. C'est la vie.
GAVIN JAYAPAL
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