On 16 October 2019 the Federal Court delivered a landmark ruling in Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd,(1) in which it clarified points of law on the retrospective application of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) and the application of Section 35 of the CIPAA, which governs the validity of pay-when-paid clauses in construction contracts.
Bauer appointed Jack-In Pile as its subcontractor for a development project in Gombak via a letter of award dated 16 March 2011. Clause 11.1 of the letter of award stipulated that all payments to Jack-In Pile would be made within seven days from the date on which Bauer received its related progress payments from the project's employer. From 2011 to 2013 Bauer reiterated its reliance on Clause 11.1 of the letter of award; as a result, it was not obliged to pay Jack-In Pile until and unless it received payment from the employer.
Payment disputes arose between the parties to the project and after the CIPAA came into force on 15 April 2014, Jack-In Pile initiated adjudication proceedings against Bauer thereunder. At the conclusion of the proceedings, the adjudicator decided that Bauer had to pay Jack-In Pile RM906,034. Jack-In Pile and Bauer then filed applications to enforce and set-aside the adjudication decision respectively.
Relying on the decision in UDA Holdings Bhd v Bisraya Construction Sdn Bhd,(2) the high court held that the CIPAA (including Section 35) applied retrospectively. It accordingly decided in favour of Jack-In Pile and dismissed the setting aside and granted the enforcement application. Bauer then appealed both matters to the Court of Appeal.
Having said that Section 35's applicability depended on whether the CIPAA was intended to have retrospective application, the Court of Appeal found that there was no express provision in the CIPAA excluding or including construction contracts made before the CIPAA's commencement. The court went on to hold that it was trite that unless there were clear words in the legislation to the contrary, any legislation affecting substantive rights must be given a prospective effect. According to the Court of Appeal, Section 35 related to a substantive right of individuals – namely, the right to the freedom of contract. The Court of Appeal accordingly concluded that the CIPAA was prospective in nature and allowed both appeals. Dissatisfied with the decision, Jack-In Pile filed appeals on both matters with the Federal Court.
In dismissing both appeals, the Federal Court held that in the absence of express words to such effect, a statute, notwithstanding whether it is procedural or substantive, cannot be applied retrospectively to impair a substantive right. Section 35 of the CIPAA, which prohibits conditional payment clauses, impairs an individual's right to the freedom of contract where parties are entitled to regulate their business affairs. Any interpretation that the CIPAA takes effect retrospectively would inhibit Bauer's vested right in accordance with the bargain entered into between the parties. As such, without any express intention by Parliament that the CIPAA is to be applied retrospectively, it can be applied only prospectively.
In reaching its decision, the Federal Court expressly disagreed with the high court in UDA Holdings and found that the latter court did not appear to have fully appreciated the statutory provisions of the Interpretation Act 1948 and the common law position that in the absence of clear and express words to such effect, a statute, such as the CIPAA, cannot be applied retrospectively.
The Federal Court's decision that the CIPAA does not have retrospective effect is far reaching, as contracts entered into and payment disputes which arose before the act's enforcement are now exempt from the application of the legislation.
Notably, on the same day that the judgment in Jack-In Pile was issued, the Federal Court issued its judgment in Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd,(3) in which it held, on substantially similar grounds as in Jack-In Pile, that the CIPAA has no retrospective effect.
Endnotes
(1) Civil Appeal 02(f)-58-07/2018(B).
(3) Civil Appeals 02(f)-124-12/2018(W), 02(f)-125-12/2018(W) and 02(f)-126-12/2018(W).
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