Resolving Construction Disputes afuer the MCO 2 Wed 29 April 2020 - - PowerPoint PPT Presentation

Resolving Construction Disputes afuer the MCO

MWKA ONLINE TALKS

Speaker CHRISTINE TOH Partner

Wed 29 April 2020 11:00am (GMT +8) mwka.com/talks

Speaker HANNAH PATRICK Senior Associate Moderator WONG SUE ANN Associate

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MWKA ONLINE TALKS

Speaker CHRISTINE TOH Partner

Wed 29 April 2020 11:00am (GMT +8) mwka.com/talks

Speaker HANNAH PATRICK Senior Associate Moderator WONG SUE ANN Associate

Resolving Construction Disputes afuer the MCO

About Us

• Welcome to MahWengKwai & Associates!
• Trusted

by small medium enterprises (SMEs), family businesses and individuals.

• Established

in 1985 by Dato’ Mah Weng Kwai, now a consultant with the firm.

• Medium-sized law firm with 22 lawyers and 19 staff.

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Our Services

• Full-service law firm with 4 Departments:

○ Corporate ○ Dispute Resolution ○ Employment ○ Individuals & Families

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Our Practice Groups

• 5 Practice Groups:

○ ASEAN-China Desk ○ Construction ○ Foreign Direct Investment ○ Real Estate ○ Sports & eSports

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MWKA Online Talks

• To share knowledge, raise awareness, encourage networking
• For clients, potential clients, in-house counsel
• Recent MWKA Online Talk:

○ 27.4.2020: How to deal with the Impact of the MCO on Commercial Contracts?

• Upcoming MWKA Online Talk:

○ 4.5.2020: Arrest, Remand & Bail during the MCO

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Hannah Patrick

• Senior Associate in Dispute Resolution

department in MahWengKwai & Associates.

• Bachelor of Laws (University of Malaya).
• Admitted to the High Court of Malaya in 2013

and the High Court of Sabah and Sarawak in Sarawak in 2017.

• Involved in various civil, arbitration and

adjudication construction matters.

• Areas of practice includes general litigation,

administration of estate and debt recovery.

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Christine Toh

• Partner in Dispute Resolution department in

MahWengKwai & Associates.

• Bachelor of Commerce / Bachelor of Business

System (Monash University).

• Bachelor of Law (University of London)

(Honours Second Class Upper Division).

• Admitted to the High Court of Malaya in 2017
• Association
• f

Chartered Certified Accountants, certified Adjudicator and empanelled with the Asian International Arbitration Centre

• Areas of practice includes Construction

adjudication, arbitration and litigation, taxation, family law, and contractual disputes.

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Talk Points

• Likely issues and disputes arising from the MCO
• Dispute resolution mechanisms
• Construction Adjudication under CIPAA 2012
• Recent developments in the law

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Likely issues and disputes arising from the MCO

Likely issues and disputes arising from the MCO

• Time - Application for Extension of Time (EOT)
• Liquidated Ascertained Damage (LAD)
• Claim for Variation Order Works (VO Works)
• Claim for Loss & Expenses
• Grounds - suspension of works during MCO, force majeure, etc
• Refer post:

https://mahwengkwai.com/contractors-construction-industry-man age-problems-covid-19-mco/

Time

• Time is usually of the essence in construction contracts
• Questions which may arise due to MCO:

○ Works cannot be completed within the contractual date of

• completion. What happens then?

○ What if EOT not granted? ○ What if the certificate of non-completion not issued?

• PAM 2018 - Clause 23, IEM - Clauses 20.3(2) and 44, PWD - Clause

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LAD

• LAD (Liquidated Ascertained Damages)

○ Damages recoverable as a result of non-completion of works or delay of works by contractor ○ Claimable? Amount reasonable? ○ PAM 2018 - Clause 22.1, IEM - Clause 46, PWD - Clause 40.2 ○ New developments in the law

Variation Orders

• Claim for Variation Order

○ Increase, decrease, omission or substitution of works, change in character or quality of work ○ PAM 2018 - Clause 11.1, IEM - Clause 51.2 (1), PWD - Clause 24.2

• Procedures and notice requirements

Claim for Loss & Expenses

• Claim for Loss & Expenses

○ Reimbursements to contractors when they incur loss and expenses due to events outside the contractual provision ○ PAM 2018 - Clause 24.1, IEM - Clause 20.3(1), PWD - Clause 44

• Examples of Loss & Expenses arising from the Covid-19 MCO

○ Demobilisation and remobilisation costs ○ Site staff salaries, accommodation, utilities ○ Rental for sheet piles, forklift, excavator, other plant equipments, scaffolding ○ Extended insurance coverage

Dispute Resolution Mechanisms

Remedies available

• Court proceedings

○ Magistrate Court - Below RM100,000 ○ Sessions Court - Below RM1,000,000 ○ High Court - Above RM1,000,000 ■ Construction Court in Kuala Lumpur - Lim Chong Fong J & Hajah Aliza binti Sulaiman J ■ Construction Court in Shah Alam - Wong Kian Kheong J

• Arbitration
• Adjudication - contractual (PAM) or statutory (CIPAA 2012)

Construction Adjudication under CIPAA 2012

CIPAA 2012

• Construction Industry Payment and Adjudication Act 2012
• Came into effect on 15.4.2014
• To facilitate regular and timely payment by providing a mechanism

for speedy dispute resolution

• Adjudication is timely, from the service of the 1st “cause paper” up

to the delivery of the Adjudication Decision - Not more than 105 working days (approximately 5.25 months)

Essential Characteristics

程序是简易和非正式 Procedure is summary & informal

Provides an interim/temporary solution

Can be both inquisitorial and adversarial Procedure is summary & informal No negotiations involved Short time frame (relatively) A statutory procedure

Application of the CIPAA 2012

• CIPAA 2012 applies to:

○ Every construction contract made in writing relating to construction work carried out wholly or partly within the territory of Malaysia including a construction contract entered into by the Government.

• CIPAA 2012 does not apply to:

○ Construction contracts by a natural person for any construction works for a building which is less than 4 storeys high and is wholly intended for his occupation.

Time Overview

Source: AIAC

Effect of an Adjudication Decision

• Temporary finality - finally decide in arbitration or court
• What if the losing party refuses to pay?

○ Application for enforcement under Section 28 of CIPAA 2012 ○ Effect of enforcement - may be executed in accordance with the rules on execution of the orders or judgment of the High Court.

Other Provisions under CIPAA 2012

• Suspension / slowdown of work Section 29
• Direct payment from Principal under Section 30

○ Article: Getting Direct Payment from the Principal under Section 30 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012)

• Prohibition of Conditional Payment under Section 35
• Default Provisions in the Absence of Terms of Payment under

Section 36

Recent Developments in the Law

Applicability of CIPAA

• Previously:

○ Uda Holdings Bhd V Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 11 MLJ 499

• CIPAA 2012 is now prospective

○ Jack-In-Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd & Anor Appeal [2020] 1 CLJ 299 - Idrus Harun FCJ ○ Article: Update: CIPAA Is Prospective!

• What happens if Letter of Award/Letter of Offer was issued before

15.4.2014 but contract was signed after 15.4.2014?

Applicability of CIPAA 2012

• Konsesi Kota Permatamas Sdn Bhd v Tech Art Sdn Bhd and another

case [2020] 1 LNS 196 - Wong Kian Kheong J ○ LA concluded on 8.5.2013, PAM signed on 21.7.2014. ○ As of 8.5.2013, parties had contractual rights under the LA which should not be impaired in any manner by CIPAA 2012. ○ Even before CIPAA 2012 came into force, parties acted on their vested contractual rights and entered into transactions. ○ CIPAA 2012 not applicable.

Applicability of CIPAA 2012

• KLIAA-KLIAC Consortium & Ors v Latipah bt Abu t/a LA Architect

[2020] 1 LNS 129 - Lim Chong Foong J ○ Letter of Offer on 13.1.2014, Consultancy Agreement 19.5.2015. ○ Court held: According to Clause 5 of the LO, parties contemplated further negotiations. As a matter of fact, parties further negotiated and eventually concluded the agreement on additional terms as well as terms that are at variance with those in the LO. ○ Consultancy Agreement could not have merely been a formality to formalize the desire of the parties. ○ Contract is made on 19.5.2015, CIPAA 2012 is applicable.

Direct Payment from Principal

• Court of Appeal in CT Indah Construction Sdn Bhd v BHL Gemilang

Sdn Bhd [2020] 1 CLJ 75: ○ CT Indah was a subcontractor for a project known as “The Mark”, BHL Gemilang is the developer and BHL Builder is the main contractor. ○ Adjudication Decision obtained by CT Indah, BHL Builder was to pay RM9m to CT Indah by 21.11.2016. ○ CT Indah requested for direct payment from BHL Gemilang (principal) pursuant to s30 CIPAA 2012 on 7.12.2016. No response from BHL Gemilang. ○ BHL Builder was subsequently wound-up.

Direct Payment from Principal

• CT Indah Construction Sdn Bhd (cont’d):

○ High Court - Disallowed CT Indah’s application for direct payment against BHL Gemilang. ○ Court of Appeal allowed the appeal ■ s30 CIPAA 2012 creates a independent statutory obligation to pay. ○ Applied recently by Wong Kian Kheong J in Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2019] 1 LNS 1629

Liquidated Ascertained Damages

• The previous position of Malaysian Courts on LAD Clauses followed

the Federal Court case of Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817 ○ Any innocent party seeking to rely on an LAD clause would have to prove the actual damage suffered ○ The Court must be satisfied that the innocent party had successfully proven the loss and/or damage before awarding such sum provided for in the LAD clause to the innocent party

• Federal Court case of Cubic Electronics Sdn Bhd (in liquidation) v

Mars Telecommunication Sdn Bhd [2018] MLJU 1935 ○ The innocent party seeking to rely on an LAD clause must show: ■ A breach of contract; and ■ The contract contains a clause specifying a sum to be paid upon such breach. ○ Upon satisfying the above requirements, the burden shift to the defaulting party to prove that the LAD clause (and the specified amount in the clause) is unreasonable.

Liquidated Ascertained Damages

• Cubic Electronics (cont’d)

○ If the defaulting party fails to prove that the LAD sum is unreasonable, the innocent party is entitled to receive a sum not exceeding the amount specified in the contract ○ Reasonable compensation is defined in section 75 of the Contracts Act - not extravagant, exorbitant or unconscionable. ○ The concepts of “legitimate interest” and “proportionality”

Liquidated Ascertained Damages

• Macvilla Sdn Bhd v Mervyn Peter Guan Yin Hui & Anor [2019] MLJU

693 ○ Background facts - claim for LAD by homebuyers ○ Court of Appeal dismissed the appeal ○ Set out the following methodology ■ If there is a stipulated sum as agreed damages, there is a presumption that it is a penalty. If the defaulting party agrees to the clause there is no issue. ■ If the defaulting party objects to the clause, the plaintiff has an obligation to prove loss and damage.

Liquidated Ascertained Damages

Liquidated Ascertained Damages

• Macvilla Sdn Bhd (cont’d)

○ If he does not succeed wholly or partly, the courts have a statutory discretion to provide reasonable compensation as

• pposed to nominal damages.

○ Examples ■ An agreed liquidated sum of 10% of the value of the property may be a reasonable compensation or one according to the market practice ■ Standard Form such as PAM/CIDB - “the courts should give due weight to the agreed terms and the liquidated sum stipulated should be recognized, unless there are compelling reasons not to do so”

• Macvilla Sdn Bhd (cont’d)

○ The courts should not put the innocent party to strict proof at the expense of the public purse to benefit the defaulting party. ○ “It is best for the court to deal with the issue of compensation summarily to satisfy the stipulated sum is reasonable, according to the market practice.”

Liquidated Ascertained Damages

Winding-up and Adjudication Decision

• Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244

○ Bina Puri obtained an adjudication decision against Likas Bay and thereafter served a statutory notice of demand on Likas Bay ○ Subsequently, Bina Puri presented a winding-up petition on Likas Bay, to which the High Court granted the winding-up order ○ The Court of Appeal found that Bina Puri was competent to file the winding-up petition against Likas Bay who failed or neglected to pay the adjudicated sum

• Likas Bay Precinct Sdn Bhd (cont’d)

○ It is not mandatory that there must be a judgment entered in favour of Bina Puri for the amount that was being claimed and pursued by Bina Puri against Likas Bay ○ There was no application to set out the adjudication decision, and as such, the adjudication decision was good and proper ○ It was just and equitable for the High Court to grant the winding-up petition against Likas Bay

Winding-up and Adjudication Decision

• ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020]

MLJU 282 ○ Econpile was appointed by ASM as the main contractor for a project ○ Upon succeeding in its CIPAA 2012 proceedings against ASM, Econpile issued and served a Section 466 notice on the ASM for the adjudicated sum of RM67m ○ ASM filed an originating summons against Econpile for an injunction to prohibit Econpile from presenting or filing winding-up proceedings, known as a Fortuna Injunction

Winding-up and Adjudication Decision

• ASM Development (cont’d)

○ High Court allowed ASM’s injunction application - Econpile could not present a winding-up petition against ASM ○ High Court found that ASM’s disputes of Econpile’s claims are bona fide and upon substantial grounds ○ During the pendency of CIPAA 2012, parties served notice of arbitration on each other ○ ASM’s LAD claim of RM142m based on Certificate of non-completion issued by the architect ○ Notice of default issued - suspension of work, abandonment of works

Winding-up and Adjudication Decision

• ASM Development (cont’d)

○ “Clearly, there are disputes and arguments against each party‘s

• claims. However, based on the evidence made available, I am of

the view that the Plaintiff‘s disputes of the Defendant‘s claims allowed by the Adjudication Decision and its counterclaims and/or set-offs, … , are bona fide and upon substantial grounds. Whether the Plaintiff will finally be successful is a matter for the arbitrator and I am not required to and I express no views on this.” ○ The case is currently being appealed to the Court of Appeal.

Winding-up and Adjudication Decision

• Can the Court remit an adjudication decision for re-adjudication by

Adjudicator? ○ TRT Engineering (M) Sdn Bhd v Hansol KNM Greentech Sdn Bhd and another case [2020] 1 LNS 88

Re-Adjudication ?

Questions?

Upcoming Talks

Date Topic Speakers 4 May 2020 (Monday) Arrest, Remand & Bail during the MCO Vivien Fan and Wong Chee En 6 May 2020 (Wednesday) Debt Recovery During and After the MCO Gan Chong Chieh and Wong Sue Ann 8 May 2020 (Friday) Unfair & Constructive Dismissal Claims Due to Pay Cuts and Retrenchment John Chan Sign up for more MWKA Online Talks at https://mahwengkwai.com/talks-signup/

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Notice: This presentation does not constitute legal advice and its contents should not be relied upon as such. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.

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