Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) is PROSPECTIVE!

On 16th October 2019, the Federal Court in the landmark cases of Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd  (“Jack in Pile”) [Civil Appeal No.: 02(f)-58-07/2018(B) and Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd Civil Appeal (“Ireka Engineering”)  No.: 02(f) -124-12/2018 (W) had settled the air of uncertainty relating to whether Construction Industry Payment and Adjudication Act 2019 ("CIPAA 2012") applies retrospectively.

Decision of the Apex Court

The Federal Court had answered the aforementioned question of law in the negative and held that CIPAA 2012 does not apply to construction contracts entered before the implementation of CIPAA 2012, i.e. 15^th April 2014. This would mean that any applicable construction contracts that were entered into prior to the effective date of 15^th April 2014 would not be subject to the operation of CIPAA 2012, which provides for amongst others, statutory adjudication of payment disputes.

The Federal Court in Ireka Engineering at paragraph [85] and in Jack in Pile at paragraph [59] respectively had notably held the following:

"…Where parties have acted on their contractual rights in respect of a particular clause such as the pay-when-paid clause in Bauer and the cross-claim contract set-offs in the instant appeals, section 35 and 5 of CIPAA 2012 respectively should not have a retrospective effect on the contract between the parties in order to interfere with those contractual rights which have already been vested and exercised by the appellant. We would go further to say that in such a any interpretation that the statute operates retrospectively would prejudicially affect vested rights or the legality of the transaction which predators the legislation”

The Federal Court in both Jack in Pile and Ireka Engineering further expounded that in the absence of express words to such effect, a statute, notwithstanding whether it is procedural or substantive, cannot be applied retrospectively to impair a substantive right. Section 35, which prohibits conditional payment clauses and Section 5 which limits the adjudicator’s determination in CIPAA 2012 to a single construction contract, impairs an individual’s right to freedom of contract where parties are entitled to regulate their business affairs. As a result, any interpretation that CIPAA 2012 takes effect retrospectively would inhibit the vested rights in accordance with the bargain entered into between parties.

Therefore, in Jack in Pile, it was held that the said construction contract was not subject to the prohibition on conditional payment as instructed in Section 35 and in Ireka Engineering, it was also held that that Appellant was free to exercise its contractual entitlement to exercise cross contract set-offs, notwithstanding the trite principle of Section 5 which makes it sufficiently clear that the Adjudicator is only required to make a finding on a single construction contract. The rigours and strict rules of CIPAA 2012 were circumvented in the aforementioned cases as the payment disputes were premised on construction contracts which were entered and executed before the implementation of CIPAA 2012, i.e. 15^th April 2014.

In the upshot, the Apex Court’s pronouncements in both Jack in Pile and Ireka Engineering will have a significant impact on the construction industry, as any payment disputes stemming from a construction contract entered before 15^th April 2014 would not fall within the purview of CIPAA 2012 and correspondingly any adjudication decision premised on a contract pre 15^th April 2014 will be regarded as null and void.