Did the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Act 829) (“Covid Act”) impact adjudications under CIPAA[1]?
by Datin Chu Ai Li, Partner of Azman Davidson & Co.
The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (“Covid Act”), which came into effect retrospectively on 18 March 2020[2], was intended to provide temporary relief to the parties of certain categories of contracts who were affected by the impact of the measures taken by the Malaysian government to curb the spread of the Covid 19 virus in Malaysia. One of the categories of contracts included under Part II of the Covid Act is construction contracts[3]. The operation of Part II of the Covid Act was extended until 22 October 2022[4].
Section 7 of Part II of the Covid Act states:
“Inability to perform contractual obligation
- The inability of any party or parties to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to [Part II (Act 829)] due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 (Act 342) to control or prevent the spread of COVID-19 shall not give rise to the other party or parties exercising his or their rights under the contract.”
In the recent case of Dewani Design Sdn Bhd v Zhongji Construction Sdn Bhd and another case [2022] MLJU 3171, questions arose as to whether the Covid Act impacted adjudications under CIPAA. Questions were raised as to whether the Covid Act deprived adjudicators of jurisdiction to adjudicate claims under CIPAA, barred adjudicators from proceeding with claims under CIPAA, provided a ground for the court to set aside adjudication decisions, supported the court’s exercise of discretion to stay the enforcement of adjudication decisions, and barred the successful party from enforcing adjudication decisions.
In this case, Zhongji Construction Sdn Bhd (the main contractor) appointed Dewani Design Sdn Bhd (the sub-contractor) to perform the remaining works in a construction project in Malacca. The sub-contractor commenced an adjudication proceeding under CIPAA against the main contractor in respect of its claim for certified and uncertified values of works. During the adjudication proceeding, one of the arguments raised by the main contractor was that the adjudicator had no jurisdiction to adjudicate the sub-contractor’s adjudication claim due to the enforcement of the Covid Act. The adjudicator made an adjudication decision in favour of the sub-contractor. The main contractor filed applications to the High Court to set aside as well as to stay the adjudication decision.
The main contractor’s argument appeared to be premised on the base argument that its inability to pay the sub-contractor’s claim fell within Section 7 of the Covid Act. The High Court agreed that section 7 of the Covid Act applied to the letter of award in this case as it was a construction contract within the meaning of paragraph 1 of the Part II of the Covid Act. However, the High Court held that the main contractor failed to prove that the main contractor’s inability to pay the sub-contractor was caused by measures under the Prevention and Control of Infectious Diseases Act 1988 (Act 342), and that such inability took place on or after the date of enforcement of the Covid Act.
The High Court then went on to consider the questions relating to the impact of the Covid Act on CIPAA adjudications.
The High Court decided that the adjudicator had jurisdiction to adjudicate the sub-contractor’s claim and that the Covid Act did not deprive the adjudicator of his jurisdiction under CIPAA. The High Court said that Section 7 of the Covid Act concerned the inability of a party to perform its obligation under the construction contract, The High Court further said that there was nothing in Section 7 of the Covid Act which ousted the adjudicator’s jurisdiction to adjudicate the sub-contractor’s claim under CIPAA, and that the object or purpose of the Covid Act did not support the deprivation of the adjudicator’s jurisdiction under CIPAA.
The High Court rejected the main contractor’s argument that the Covid Act provided a ‘statutory moratorium’ to restrain the sub-contractor from proceeding with the adjudication proceeding against the main contractor.
The High Court was of the view that Section 7 of the Covid Act could not be a ground for the court to set aside an adjudication decision under Section 15 of CIPAA. The High Court was further of the view that there was nothing in Section 7 of the Covid Act and the object of the Covid Act which curtailed the court’s discretionary power under Section 16 of CIPAA to decide whether to stay an adjudication decision or not. Finally, the High Court was of the opinion that Section 7 of the Covid Act and the object of the Covid Act did not bar the exercise of the Court’s power to enforce the adjudication decision under Section 28 of CIPAA.
In conclusion, the High Court’s decision in Dewani Design Sdn Bhd v Zhongji Construction Sdn Bhd has made it clear that the Covid Act had no impact on the provisions of CIPAA with respect to the rights of parties to refer disputes arising from CIPAA payment claims to adjudication, the jurisdiction of adjudicators to adjudicate disputes arising from CIPAA payment claims and the powers of the courts over adjudication decisions on CIPAA payment claims.
[1] CIPAA is the acronym for the Construction Industry Payment and Adjudication Act 2012 (Act 746).
[2] Refer to Section 5(1) of the Covid Act.
[3] Refer to paragraph 1 of the Schedule to Part II of the Covid Act:
“1. Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers in connection with a construction contract.
[4] Refer to Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) (Extension of Operation) (No. 4) Order 2021 (P.U.(A) 485).