CASE UPDATE: The Failure to file CIPAA Payment Response does not preclude the raising of New Defences in Adjudication Response

View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22

This is the first Federal Court decision on CIPAA and it brought about significant changes to the CIPAA regime.

In particular, the Federal Court ruled that the Adjudicator is obliged to consider new defences raised by the Non-Paying Party / Respondent in the Adjudication Response. 

By virtue of the decision, the significance of the Payment Response  had been reduced tremendously.

It appears that there is no repercussion to a Non-Paying Party/ Respondent in not filing the Payment Response.

For strategic reason, the Non-Paying Party/Respondent may want to submit only a scanty Payment Response or even not submitting the Payment Response at all to preserve the element of surprise and ambush the Unpaid Party/Claimant at the Adjudication Response stage. 

As a result, this puts the Unpaid Party / Claimant at a disadvantage as the Unpaid Party/Claimant only has 5 working days to file Adjudication Reply from the receipt of Adjudication Response.

Background

The Contractor served a CIPAA Payment Claim against the Developer of the Project for a dispute arising from progress claim.

The Developer responded with a Payment Response and disputed the Contractor’s claim.

Thereafter, when the Developer issued the Adjudication Response, the Developer sought to introduce 3 new defences which were not raised in the Payment Response to dispute the claim. These 3 new reasons were in the nature of set-off and cross-claims.

Adjudication Decision was rendered in the Contractor’s favour. In the Adjudication Decision, the Adjudicator refused to consider the 3 new reasons raised by the Developer on the ground that it was not pleaded in the Payment Response and therefore, the Adjudicator lacks the jurisdiction to deal with the 3 new defences.

Dissatisfied with the Adjudication Decision, the Developer sought to set aside the Adjudication Decision.

 

Decision of the Federal Court

The Federal Court reasoned that the jurisdiction referred to in Section 27 of CIPAA refers to the ‘cause of action’ identified by the Claimant, i.e. the Progress Claim No. 28 in the present case.

It follows that there is no impediment for the Adjudicator to consider all the grounds of claims in Adjudication Claim and all grounds of defences in Adjudication Response.

As such, the Adjudicator had wrongly restricted his jurisdiction when he refused to consider the new defences raised by the Developer. The Federal Court found that there had been a breach of natural justice and set aside the Adjudication Decision.

Importantly, the Federal Court also held that the High Court had wrongfully decided that when the Non-Paying Party/Respondent had failed to file the Payment Response, the Respondent can only dispute the claim as it stands and not raise any positive defence.

 

*** Update:

it is understand that the Federal Court had granted leave in the case of Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd and another case [2017] 8 MLJ 708 and Leap Modulation Sdn Bhd v PCP Construction Sdn Bhd and another appeal [2019] 1 MLJ 334 on the similar question of law raised in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 and may review and change the current position of law.

Given the circumstances, it would be prudent for a non-paying party to file a Payment Response.

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