Sole Proprietors – Are You Competent to Commence Adjudication Proceedings under the Construction Industry Payment and Adjudication Act 2012 in the name of the firm?

By Karen Ng Yueh Ying, Partner, Messrs. Yatiswara, Ng & Chan

Adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) are a summary procedure for contractors (or subcontractors) to refer payment disputes arising from a construction contract to an adjudicator for a quick decision.

The first step under the CIPAA 2012 is for an unpaid party to serve a payment claim on the non-paying party for payment pursuant to a construction contract. Thereafter, either the unpaid party or the non-paying party may then refer the dispute arising from a payment claim to adjudication by serving a written notice of adjudication to the other party.

Question: Whether a sole proprietor is competent to commence adjudication proceedings under the CIPAA 2012 in the name of the firm?

This issue was discussed by the Malaysian High Court case of China 1^st Metallurgical Construction (M) Sdn Bhd v Galaxy Plumbing & Construction [2023] 1 LNS 95, [2023] MLJU 217.

Brief Facts: The Plaintiff is the sole proprietor of Galaxy Plumbing & Construction (“GPC”). The Plaintiff commenced adjudication proceedings against China 1^st Metallurgical Construction (M) Sdn Bhd (“CMC”) in the name of GPC and obtained an adjudication decision against CMC. The Plaintiff sought to enforce the said adjudication decision in the High Court against CMC, whereas CMC applied to set aside the adjudication decision in the same High Court proceedings based on the following grounds:

• GPC does not have the locus standi to commence the Adjudication as it is a sole proprietorship and not a company or partnership.
• There is no construction contract in writing thus the Adjudication cannot come under CIPAA; and
• The appointment of the Adjudicator who delivered the Decision was null and void as GPC had prior to the appointment of the Adjudicator commenced a 1^st Adjudication Proceedings, in which an adjudicator had been appointed which had reached the Adjudication Response stage and for which GPC had not issued a written withdrawal for the said 1^st Adjudication Proceedings nor had GPC issued a fresh notice of adjudication for the appointment of the current Adjudicator.

The High Court’s Decision: The learned High Court Judge set aside the Adjudication Decision purely on the lack of locus standi on the part of the unpaid party (GPC) and that therefore the Adjudicator did not have the jurisdiction to decide the adjudication dispute and deliver the Adjudication Decision. The learned High Court Judge had not found it necessary to consider the other issues raised by CMC in light of his Lordships’ decision on the issue of locus standi of GPC.

The learned High Court Judge held that parties who are relying on the CIPAA 2012 to initiate or defend any adjudication proceedings thereunder are subject to the law on legal personality i.e., only a legal personality or entity has capacity to sue or be sued. A sole proprietorship (i.e. the name of the firm that is owned by the sole proprietor) is not a legal personality or entity and has no capacity to sue or be sued.

It follows that a sole proprietor of a firm must sue in his own name, and not in the name of his firm, as he is the correct and proper party to initiate statutory adjudications under CIPAA 2012. If the sole proprietor of a firm is suing, he must sue in his own name and add below his own name within brackets the name of the firm of that sole proprietor so as to inform the defendant that he is suing as a sole proprietor. All parties be it in CIPAA or Arbitration proceedings are still bound by this law and a party with no recognised legal capacity cannot take advantage of CIPAA and the provisions thereto and contend that it is merely a technical or legal argument.

Key takeaways

1. A sole proprietor must sue in its own name, and not in the name of his firm, and there is no exception to this legal requirement with regards to CIPAA 2012.
2. Although there is no specific provision in the CIPAA 2012 which states that a sole proprietorship (i.e. the name of the firm) is not competent to commence an adjudication proceeding, CIPAA 2012 is still subject to the legal personality principle.
3. It is important to initiate an adjudication proceeding with the correct party’s name that has capacity to sue and be sued. If the sole proprietor of a firm is suing, he must sue in his own name and add below his own name within brackets the name of the firm of that sole proprietor so as to inform the defendant that he is suing as a sole proprietor.

2.1.2024