VIEW ESTEEM CASE – PAYMENT RESPONSE NOW A DEAD LETTER?

On 6 November 2017, the Federal Court made a landmark decision that changed what was thought to be established law under the Construction Industry Payment And Adjudication Act 2012 (“CIPAA”).  The decision was delivered in the case of View Esteem Sdn Bhd v Bina Puri Holdings Bhd.  The decision significantly affected two areas – (a) jurisdiction of an adjudicator vis-à-vis the payment response; and (b) stay of an adjudication decision.  This post shall address the first area, leaving the second area to a subsequent post.

 

Background

The adjudication process allows parties to state their respective case in 2 stages.  The 1st stage takes place before an adjudicator is appointed.  At this stage, the claimant serves a payment claim on the respondent, and the respondent can reply by serving a payment response.

The 2nd stage occurs after the adjudicator is appointed.  The claimant serves the adjudication claim, and the respondent replies by serving an adjudication response.  Thereafter, the claimant can serve an adjudication reply, to have the final say.

The payment claim (1st stage) will set out brief details of the claim, which will be expanded on in the adjudication claim (2nd stage).  Similarly, the payment response (1st stage) usually contains the respondent’s defences in brief, to be elaborated in the adjudication response (2nd stage) later.

 

Jurisdiction & Payment Response

Previously, an adjudicator cannot consider a respondent’s defences that were absent from his payment response.  This was because the adjudicator had no jurisdiction to do so.  However, this has now changed.

The Federal Court decided that an adjudicator has to consider all defences in the respondent’s adjudication response, even though some of them were not raised before in the payment response earlier.  The Federal Court based this on their reading of CIPAA, which departed from the established views of the Court of Appeal and High Court.

In coming to their conclusion, the Federal Court did not appear to have given enough weight to the following:

(a)       Apart from the payment claim, the adjudicator’s jurisdiction under CIPAA is also limited to matters referred to adjudication pursuant to the payment response.

(b)       Speed is a key factor in CIPAA adjudications.  To facilitate a speedy outcome, it is necessary for the parties to disclose and exchange their reasons at an early stage – i.e. the payment claim and payment response – to avoid or minimize surprise later when the proceedings are on foot.

 

Ramifications

As a result of this decision, it is now not necessary for a respondent to state his defence in a payment response.  He can raise the defence later, in his adjudication response, so as to ambush the claimant.  Consequently, the requirement to serve a payment response is likely to become a dead letter.

Upon seeing the defence for the first time in the adjudication response, the claimant would have only a short time – 5 working days – to refute it by serving an adjudication reply.  This of course puts tremendous pressure on the claimant.

In contrast, the respondent has more time to prepare his adjudication response.  The respondent would already be aware of the claim at least 2 months earlier when the respondent received the payment claim.  And upon receiving the claimant’s adjudication claim, the Respondent has 10 working days to prepare his adjudication response.

The claimant may be left with no choice but to ask for more time to prepare his adjudication reply.  An adjudicator is likely to be sympathetic to such a request, when there has been an ambush by the respondent.  Where more time is granted, the proceedings would be delayed.  This result is foreseeable, now that the law has changed.

The contents of this article are published for the purpose of general information only; they are not to be regarded, used or relied on as legal advice for any matter.  Please contact us if you require legal advice specific to your case.