Session 9: Construction Adjudication in Malaysia Dato Kevin Woo Chaired by: Mark Griffith

2. THE INSTITUTE OFARBITRATORS & MEDIATORSAUSTRALIA2009 ANNUAL CONFERENCE

4. ADJUDICATION IN MALAYSIA contractual and not statutory. Contractual adjudication under The Malaysian Institute of Architect�s (PAM) Standard Form of Building Contract 2006 Edition was recently introduced and launched by The Minister of Works, YB Dato� Seri Samy Vellu on 5 April 2007.

5. PROBLEMS IN THE MALAYSIAN CONSTRUCTION INDUSTRY Frequent deductions, back charges, and frivolous claims by main contractor against sub-contractors. Non-compliance of specifications and poor quality of workmanship by contractors. Easy access into an ADR mechanism to resolve disputes. Speedy decision by neutral and expert so that parties have certainty in their respective positions during the currency of the Works.

6. RATIONALE Addresses the concerns of main-contractors and sub-contractors in respect of certification and payment, deductions and back charges & frivolous claims by either party . Allows the Employer and/or the Architect on behalf of Employer to accept sub-standard works subject to deductions and set-off. Early determination of issues to preserve relationships of all parties in a chain contract. An ADR mechanism (traditionally arbitration and mediation)

7. CONTRACTUAL ADJUDICATION - PAM Standard Form of Building Contract 2006 Scope of Applicability (Clause 34) - disputes arising from monetary set-offs and loss and expense claims, due to:- Clause 1.2.4 Failure of Contractor to Comply with Architect�s Instructions. Clause 1.4.4 Failure to pay Fees, Levies and Charges. Clause 1.5.1 Errors in Setting Out the Works.

8. Clause 1.6.5(e) Works not in accordance with the Contract. Clause 1.6.7 Failure of Contractor to Comply. Clause 1.14.4 Warranty of title of Goods and Materials. Clause 1.15.3(b) Contractor�s Failure to Comply with Undertaking. Clause 1.15.3(c) Contractor�s Failure to Comply with Undertaking to works and defects of minor nature. Clause 1.15.4 Failure to Make Good Defects.

9. Clause 1.15.5 Failure to attend to urgent rectification works. Clause 1.19.5 Default in the Placing of Insurance with Licensed Insurance Company. Clause 1.20.A.3 Default in the Placing of Insurance with Licensed Insurance Companies.

10. Clause 34 - Adjudication in its Limited Application Disputes arising from the above 12 limited circumstances have to be referred to adjudication, as mandatory or condition precedent to arbitration. Party Autonomy - Parties, may by written agreement, free to refer any other disputes to adjudication, during the currency of the Works.

11. Clauses 30.4 (a) and (b) - Referral to Adjudication Prescriptive and set out time �lines for compliances and stipulate conditions precedent to the operation of monetary set-offs. The procedures include: written notice. notice to specify grounds on which set-offs are made. notice to be delivered by hand or registered post, no later than 28 days before effective set-offs.

12. details of assessment of such monetary set-offs. monetary set-offs may be disputed, within 21 days of receipt, by are Statement setting out the reasons and particulars for such disagreement. if no agreement is reached within further 21 days, then either party may refer the disputes to adjudication.

13. Clause 34.1 - Appointment of Adjudicator Parties are free to agree on an adjudicator, failing which, and upon expiry of 21 days from the date of notice to concur on the appointment of the adjudicator, the initiating party may refer to the President of Malaysian Institute of Architects (PAM) for the appointment of an adjudicator. Default appointment of the adjudicator is final and non-appealable and such appointment shall be deemed to be appointed with the agreement and consent of the parties.

14. Clause 34.4 - Finality Of Adjudicator�s Decision Parties are generally bound by the adjudicator�s decision until practical completion of the Works. What�s the appeal process? (1) aggrieved party to serve written notice within 6 weeks from the date of the adjudicator�s decision. (2) such notice is a condition precedent to the appeal process of re-adjudicating the issues through an arbitral process or litigation.

15. Definition - Adjudication Determination by a lay and expert (adjudicator) within a fairly short period of time, 28 days in United Kingdom, 10 working days in NSW, Australia, 20 days in New Zealand and 14 days in Singapore, whose decision has temporary finality unless it is re-open for arbitration. PAM Adjudication Rules Article 9�Time Frame for Adjudicator�s Decision An adjudicator shall deliver his Decision within 21 days from the date of acceptance by him of his appointment as adjudicator.

16. Who is an Adjudicator? PAM Adjudication Rules Interpretation Adjudicator means a person mutually agreed and appointed by the parties or the Adjudicator appointed by the Appointment Body pursuant to the adjudication clause in the Contract (PAM Suite of Contracts).

17. DESIGNATION OF PARTIES Adjudication The parties in the dispute are generally referred to as the �referring party� (the party referring the dispute to adjudication) and �the responding party� or the �other party�.

18. INITIATION OF ITS PROCESS Adjudication (clauses 30.4 and 30.5 of PAM 2006) - Generally, it is triggered upon disagreement between parties or disputes on the amount of set-off during the course of the Works. Fastrack Contractors Ltd v Morrison Construction Ltd and Impreglio UK Ltd (2000) - with time for either acceptance or rejection.

19. PAM Adjudication Rules Article 5.1 � Commencement of Adjudication An adjudication shall be deemed to have commenced as long as the party initiating the adjudication gives a written notice to the other party to concur on the appointment of an Adjudicator before the date of Practical Completion.

20. INITIATION OF ITS PROCESS (cont�) Adjudication Procedures under PAM Contract 2006 are prescriptive ie - anytime during the currency of Works. - time line requirement of 21 days - written notice requirement - mode of service of notice - quantification of claims and counterclaims to reasonable accuracy. PAM Adjudication Rules Article 5.1 � Commencement of adjudication Requirement of a written notice to other party to concur on the appointment of adjudicator before date of CPC.

21. RULES OF PROCEDURE - SUBMISSIONS Adjudication A referral document is essential before the adjudication process can proceed. RG Carter Ltd v Edmund Nutall Ltd (2002) where it was decided that the adjudicator could not proceed solely on a notice of adjudication The referral document is the Statement of Case which includes:- - particulars of dispute or difference - summary of contentions - statement of relief and remedy sought - proposed name or names of adjudicators

22. PAM Adjudication Rules Article 1- General Provisions. Before any dispute can be referred to adjudication, the parties must comply with provision stated in the Contract, namely;- that the party making the claim must submit his grounds and complete details of his claim to the other party. the party disputing any part or the whole of the claim shall set out the reasons and particulars of the disputed areas of claim; and only after the parties have failed to agree on the claim, either party may then refer the dispute to adjudication.

23. RULES OF PROCEDURE - THE DEFENCE English position In UK, neither the Act or the Scheme include any reference to the Responding party being entitled to submit a defence. However, most contract procedures do provide for a defence and the Responding party will normally wish to defend its position. The defence submission will have to be within the prescribed time limit for the adjudicator to render his decision.

24. THE DEFENCE SUBMISSION English position The defence must :- - answer or address every point in the referral document. - parts of a claim which are accepted should be admitted. - if a claim is to be rejected then every aspect must be answered. - in adjudication there is no �later� and every single point must be answered or addressed.

25. PAM Adjudication Rules Article 6.2- Adjudication Procedures. An adjudication may do all or any of the following in relation to an adjudication;- conduct the adjudication in such manner as he think fit. require further submission of documents from any party. provide an opportunity for the other party for submission of any response. call a conference of the parties.

26. INQUISITORIAL v ADVERSARIAL English position In UK, the Act requires that the adjudicator to �take the initiative in ascertaining facts and the law�. This gives the adjudicator inquisitorial powers to investigate the issue in whatever manner he or she deems appropriate given the short time scale available.

27. PAM Adjudication Rules Articles 6.2 (a) and (g)- Adjudication Procedures. An adjudicator may conduct the adjudication in such manner as he thinks fit and may issue directions as may be necessary or expedient for the conduct of the adjudication.

28. RULES OF NATURAL JUSTICE English position It has been suggested that it may be unrealistic to expect adjudicators acting under severe time constraints to comply with the principles of natural justice. Macob Civil Engineering Ltd v Morrison Construction Ltd (1999). Discain Project Services Ltd v Opecprime Development Ltd (No.1)

29. PAM Adjudication Rules Articles 6.1 (c) - Adjudication Procedures. The adjudicator shall comply with the principles of natural justice.

30. INDEPENDENCE AND IMPARTIALITY English position In UK, section 108 (2) of the Construction Act requires that all contracts �impose a duty on the adjudicator to act impartially� Under the Scheme, there is a requirement for �independence�. � A person. . .selected to act as adjudicator shall not be an employee of any of the parties to the dispute and shall declare any interest, financial or otherwise, in any matter relating to the dispute�.

31. PAM Adjudication Rules Articles 6.1 - Adjudication Procedures. The adjudicator shall act independently and impartially.

32. PAM GUIDELINES OF GOOD PRACTICE FOR ADJUDICATORS (2) Professional Standard A prospective Adjudicator shall not solicit appointment and shall accept appointment if offered only if he is fully satisfied that he is able to discharge his duties without bias or the appearance of bias.

33. LEGAL AND TECHNICAL ADVICE (EXPERTS) Adjudication The Scheme for Construction Contracts (England and Wales) Regulations 1998 (herewithafter referred to as �Scheme�) provides that the adjudicator may obtain legal and technical advice but there is no express provision for the advice obtained to be copied and extended to the parties.

34. PAM Adjudication Rules Articles 6.2 (d) - Adjudication Procedures. An adjudicator may appoint, if necessary and after notifying the parties, an independent expert to inquire and report on specific issues relevant to the adjudication.

35. TIME LIMITS FOR DECISION - Presently no statute force in Malaysia and PAM (Malaysian Institute of Architects) Adjudication Rules (2008 Edition) is scheduled to be launched in June 2009. Experiences from other jurisdictions ie adjudicators has 28 days in UK, 10 working days in NSW, Australia, 20 days in New Zealand and 14 days in Singapore. (Speedy resolution is the essence)

36. PAM GUIDELINES OF GOOD PRACTICE FOR ADJUDICATORS Articles 9.1�Time Frame for Adjudicator�s Decision. An adjudicator shall deliver his Decision to the parties, within twenty one (21) days from the date of the acceptance of his appointment.

37. PAM Adjudication Rules Article 9.1�Time Frame for Adjudicator�s Decision Default position If the Adjudicator is unable to deliver his written reason Decision within the twenty one (21) Days, the Adjudicator;- may extend the time by informing the parties, but the extension shall not exceed another seven (7) Days from the expiration of the twenty one (21) Days. the parties by written agreement may agree to extend further time for the Adjudicator to arrive at his Decision.

38. REASONS ON AN AWARD English position - Most procedures ie ICE procedure and JCT 98 forbid reasons and the Scheme stipulates. �If requested by one of the parties to the dispute, the adjudicator shall provide reasons for his decision.� PAM Adjudication Rules Article 9 - Time Frame for Adjudicator�s Decision The Adjudicator shall deliver his written reason Decision within twenty one (21) from the date of acceptance by him of his appointment as adjudicator.

39. RECOURSE AGAINST AWARD Adjudicator�s Decision (clause 34.4 of PAM 2006) - Parties are bound by the adjudicator�s decision during the currency of the contract. PAM Adjudication Rules Article 7 � Adjudicator�s Decision In the event any or both of the parties are dissatisfied with the Adjudicator�s decision, written notice must be given to the other party within six (6) weeks of the date of the Adjudicator�s decision.

40. MISTAKES OR SLIP-RULE Adjudication Adjudication is a fast procedure leading to an interim decision. The courts have taken the view that, provided the adjudicator decides the matters within his jurisdiction, they will not intervene to correct any mistakes in the decision, either mistakes of fact or of law. Bouygues (UK) Ltd v Dahl � Jensen (UK) Ltd (2000) Bloor Construction (UK) Ltd v Bowner & Kirkland (London) Ltd (2000)

41. PAM Adjudication Rules Article 8.1 - Correction of the Adjudicator's Decision If the Adjudicator�s decision contains;- a) any computation, clerical or typographical errors or errors of similar nature; b) an error arising from an accidental slip or omission; the Adjudicator may, on the Adjudicator�s own initiative or on the application of any party, correct the mistake or error, as the case may be.

42. INTERESTS English position In UK, the Scheme for Construction Contracts (England and Wales) Regulations 1998, is unclear regarding the adjudicator�s power to decide that interest is payable. The adjudicator must act within any requirements in the contract.

43. PAM Adjudication Rules Article 10 - Interest The Adjudicator shall award interest from such dates as he thinks fit on the amount awarded based on the interest rate provided in the Contract, and if no such rates are provided in the Contract, then at such rate as the Adjudicator considers appropriate.

44. PARTY COSTS English Position Many in UK industry understood that the intention was that the parties bear their own cost and be an inevitable part of the cost of being involved with construction. The Scheme is silent on this matter and the question of the adjudicator�s powers have been addressed in the courts.

45. PAM Adjudication Rules Article 5 - Adjudicator�s Statement of Cost. Upon the conclusion of the proceedings by the publication of the Adjudicator�s decision, the Adjudicator claim for Cost of the Adjudication is to be accompanied by a Statement of Adjudicator�s Cost. The statement of Adjudicator�s Cost shall be an itemized statement detailing the cost charged with regard to the heads of claims as set out in this Rule. The parties shall bear the Cost of the Adjudication in equal proportion and shall settle the cost upon collection of the Adjudicator�s Decision.

46. PAM GUIDELINES OF GOOD PRACTICE FOR ADJUDICATORS Article 3 : Due Diligence An Adjudicator should devote such time and attention as the parties may reasonable require having regard to all the circumstances of the case and shall do his best to conduct the adjudication in such manner that cost do not rise to an unreasonable proportion of the amount in dispute.

47. LIABILITY AND IMMUNITY - no statutory immunity at present moment, in the absence of the Malaysian Construction Industry Payment and Adjudication Act. - adjudicators are not immuned from actions by third parties who may be affected by their decision. - do professional indemnity insurances extend its coverage to an architect�s role as an adjudicator?

48. PAM Adjudication Rules Article 11 � Exclusion of Liability The Appointment Body, the Adjudicator and any expert appointed by the Adjudicator, shall not be liable to any party in the adjudication for any act or omission in the discharge or purported discharge of the adjudication, unless the act or omission is fraudulent. The parties and the Adjudicator agree that statements or comments whether written or oral made in the course of the adjudication shall not be relied upon to found or maintain an action for defamation, libel, slander or other related complaints.

49. ADJUDICATOR AS WITNESS Can an adjudicator be called as witness in enforcement or other court or arbitral proceedings to explain their actions or the reasons for decisions given in an earlier adjudication? - undue pressure on adjudicator. - immunity issue. - adjudicator�s fees & expense as witness. Is it a deterrent factor?

50. SOME ISSUES INCLUDE:- English position 1.0 Adjudicator�s power to rule on his jurisdiction. The Act in UK is silent on this point and the extent to which the adjudicator has power to rule on his own jurisdiction. Courts have adopted the view that unless the parties otherwise agree, an adjudicator does not have the power to make a final decision about jurisdiction.

51. 2.0 Disputes capable of referral to adjudication - � Disputes under the contract� - Disputes including claims for damages for breach of contract. - What about - variation or additional works or - settlement Agreement Shephard Construction v Mc Cright Ltd (2000) BLR 489 Latham Construction Ltd v Brian and Anne Cross (1999) CILL 1568.

52. 3.0 Costs Scheme is silent as regards whether the adjudicator may make provision for payment of costs as part of his decision. Most adjudication rules provide expressly that the parties will bear their own costs. John Cothliff Ltd v Allen Build (March West) Ltd 1999 Northern Developments (Cumbria) Ltd v J&J Nichol (2000). Bridgeway Construction Ltd v Tolent Construction Ltd (2000)

53. An End to Cash Flow Problems in the Construction Industry Chain Contracts. - from employer to contractors, specialist trades and suppliers. Dawnay v Minter by Lord Denning. �These must be cash flow in the building trades. It is the very lifeblood of the enterprise. . . One of the greatest threats to cash flow is the incidences of the disputes, resolving them by litigation is frequently lengthy and expensive. Arbitration in the construction industry is often as bad or worse.

54. ROUGH & SPEEDY JUSTICE Initiation of its process Macob Civil Engineering Ltd v Morrison Construction Ltd by Justice Ryson. �Adjudication is a speedy mechanism for settling disputes in construction contracts as a provisional basis and requiring the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement, whether those decisions are wrong in point of law or fact�

55. SOME ISSUES AFFECTING QUALITY OF JUSTICE Rough justice inherent in compressed proceedings in relatively short time-limit for rendering adjudicator�s decisions:- 1.Complicated claims are too complex to permit a fair adjudication process as in London and Australia Properties Ltd v Waterman Partnerships Ltd (2003) ALL ER (D) 391. 2.Significant drawback of a �one size for all� approach.

56. 3. Swift nature of the process deterring efficient time for response without escalating costs and potential for �ambush� by one party. 4. Lack of opportunity for evidence and assertions to be tested resulting adoption at face value. It raises serious questions as to whether the adjudication process is fair and just.

57. IS ADJUDICATION AN EFFECTIVE DISPUTE RESOLUTION MECHANISM? Speedy justice as the adjudication process may be invoked by the aggrieved party at any time, during the currency of construction works prior to practical completion. Rough justice has limited effects and decisions have only temporary finality and may be finally re-opened and determined by arbitration or litigation. ANSWER? : YES OR NO

58. TO REMAIN EFFECTIVE IN MALAYSIA, THE ADJUDICATION PROCESS MUST:- 1. Statutory instrument to codify parties� rights to refer disputes to adjudication. 2. Prescribed time limits, either by statute or contract, for rendering an adjudicator�s decision. Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd. 3. Existence of statutory immunity against liability for �anything done or omitted in the discharge or purported discharge of his function as an adjudicator unless the act or omission is in bad faith�.

59. 4. Adjudication Nominating Body or Authorised Nominating Authority (ANBs or ANAs) to speed up nomination/appointment of adjudicators � avoid frustation of its process by an unwilling party. 5. A suitable set of Adjudication Rules � addressing the salient issues raised earlier. 6. Mindset and robustness of Courts in dealing with both jurisdictional challenges and enforcement of adjudicator�s decisions. Macob Civil Engineering�s Case Bouyues v Dahl Jensen (UK) Ltd 2000 BLR 49.

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