The Impact of Multi-Tiered Dispute Resolution on the Right to Apply for Stay of CIPAA[1] Adjudication Decision
by Datin Chu Ai Li, Partner, Azman Davidson & Co.
Multi-tiered dispute resolution clauses are commonly found in construction contracts. Multi-tiered dispute resolution involves the reference of disputes through two or more dispute resolution processes. A tiered dispute resolution procedure usually starts with a non-formal process such as negotiation, followed by a semi-formal process such as mediation and end with a formal process such as arbitration The objective of multi-tiered dispute resolution is to encourage early settlement of disputes through the initial tier(s) to avoid the need to resort to the last tier of arbitration.
Multi-tiered dispute resolution found in the Malaysian standard form construction contracts range from the basic two-tiered procedures in the PWD standard forms for the reference of disputes to the Officer named in the Appendix followed by arbitration to the comprehensive three-tiered procedure found in the CIDB standard form for reference of disputes to the superintending officer, followed by mediation and finally arbitration.
The parties to construction contracts containing multi-tiered dispute resolution provisions should be aware that their right to apply for a stay of any adjudication decision made under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) may be impacted by such provisions.
In the recent case of RAPS Solutions Sdn Bhd v Itramas Technology Sdn Bhd [2022] MLJU 729, the High Court held that the commencement of arbitration by the main contractor against its sub-contractor without first completing the initial tier for amicable settlement rendered the arbitration not valid, and as such, the main contractor could not apply for stay of an adjudication decision under Section 16(1)(b) of CIPAA[2].
Itramas was the main contractor for a project involving the design, engineering and construction of a solar photovoltaic energy generating facility in Malacca. Itramas subcontracted part of the works to RAPS. Clause 20.2(a)(i) to (iii) of the sub-contract provided for an “amicable settlement” resolution procedure before RAPS and Itramas could resort to arbitration. Itramas commenced arbitration without complying with the amicable settlement procedure in the sub-contract.
The High Court held, “Section 16(1)(b) CIPAA only applies to a litigation or arbitration which has been lawfully commenced. Clause 20.2(a)(i) to (iii) COC has provided for a mandatory Dispute Resolution Process because the mandatory term “shall” is employed in Condition 20.2(a)(i) to (iii) COC. Unless clause 20.2(a)(i) to (iii) COC is complied with by Itramas, the Arbitration is not valid.” As a result, the Court held that Itramas could not rely on Section 16(1)(b) of CIPAA to apply for a stay of the adjudication decision made in an adjudication proceeding commenced by RAPS against Itramas.
A few years before RAPS Solutions v Itramas case, a party was denied of its right to apply for stay of an adjudication decision because the initial tiers in the multi-tiered dispute resolution had not been completed. In the case of Foster Wheeler E&C (Malaysia) Sdn Bhd v Arkema Thiochemicals Sdn Bhd [2015] MLJU 1952, Article 53 of the contract provided for a three-tier dispute resolution procedure involving (a) negotiation, (b) mediation, and (c) arbitration. The parties had not completed the initial tiers and no arbitration had been commenced at the time Foster Wheeler applied for a stay of an adjudication decision made against it in an adjudication proceeding commenced by Arkema. The High Court dismissed Foster Wheeler’s application which was made under Section 16(1)(b) of CIPAA because there was no “pending” arbitration.
In summary, the parties to a construction contract with muti-tiered dispute resolution provision have to comply with the initial tier or tiers of dispute resolution procedure before commencing arbitration, and a party has to actually commence arbitration before it can apply for a stay of an adjudication decision under Section 16(1)(b) of CIPAA.
[1] “CIPAA” is the acronym for the Construction Industry Payment and Adjudication Act 2012.
[2] Section 16 CIPAA provides as follows:
“Stay of adjudication decision
16(1) A party may apply to the High Court for a stay of an adjudication decision in the following circumstances:
(a) an application to set aside the adjudication decision under section 15 has been made; or
(b) the subject matter of the adjudication decision is pending final determination by arbitration or the court.
(2) The High Court may grant a stay of the adjudication decision or order the adjudicated amount or part of it to be deposited with the Director of the AIAC or make any other order as it thinks fit.”