AVOIDING,RECOGNISING, PREPARING RESOLVING CLAIMS by byrnetown75

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									                    Session 9:
  ‘Construction Adjudication in Malaysia’


              Dato Kevin Woo
Chaired by: Mark Griffith
             THE INSTITUTE OF
         ARBITRATORS & MEDIATORS
                  AUSTRALIA
           2009 ANNUAL CONFERENCE

  CONSTRUCTION ADJUDICATION IN MALAYSIA
UNDER THE PAM STANDARD FORM OF BUILDING CONTRACT 2006.
         - A MALAYSIAN ARCHITECT’S PERSPECTIVE


                    29-31 MAY 2009
               HOTEL SOFITEL MELBOURNE
                      AUSTRALIA


                     Dato’ Kevin Woo,JP
                           Director
                 KW. Hinds Blunden Sdn. Bhd.
                       Mediation     Adjudication Arbitration


PAM/ISM 1969 Edition      -Nil-          -Nil-      Clause 34

PAM 1998 Edition       Clause 35.0       -Nil-      Clause 34.0

PAM CONTRACT 2006      Clause 35.0    Clause 34.0   Clause 34.0
(launched on
  5th April 2007)
IEM 1                                               Clause 55

CIDB 2000 Edition

FIDIC 4                                             Clause 67.1

PWD203/203A                                         Clause 54
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.
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.
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)
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.
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.
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.
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.
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:

1) written notice.


2) notice to specify grounds on which set-offs are
    made.

3) notice to be delivered by hand or registered post,
    no later than 28 days before effective set-offs.
4)   details of assessment of such monetary set-
     offs.

5)   monetary set-offs may be disputed, within 21
     days of receipt, by are Statement setting out
     the reasons and particulars for such
     disagreement.

6)   if no agreement is reached within further 21
     days, then either party may refer the disputes
     to adjudication.
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.
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.
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.
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).
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”.
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.
   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.
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.
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
   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;-

     a) that the party making the claim must submit
        his grounds and complete details of his
        claim to the other party.
     b) 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
     c) only after the parties have failed to agree on
        the claim, either party may then refer the
        dispute to adjudication.
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.
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.
   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.
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.
   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.
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)
   PAM Adjudication Rules
    Articles 6.1 (c) - Adjudication Procedures.

    The adjudicator shall comply with the principles of
    natural justice.
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”.
   PAM Adjudication Rules
    Articles 6.1 - Adjudication Procedures.

    The adjudicator shall act independently and
    impartially.
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.
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.
   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.
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)
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.
   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;-

     1) 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.

     2) the parties by written agreement may agree
        to extend further time for the Adjudicator to
        arrive at his Decision.
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.
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.
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)
   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.
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.
   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.
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.
   PAM Adjudication Rules
    Article 5 - Adjudicator’s Statement of Cost.

    a) 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.

    b) 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.

    c) The parties shall bear the Cost of the
       Adjudication in equal proportion and shall
       settle the cost upon collection of the
       Adjudicator’s Decision.
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.
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?
   PAM Adjudication Rules
    Article 11 – Exclusion of Liability

    a) 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.

    b) 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.
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?
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.
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.
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)
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.
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”
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.
      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.
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
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”.
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.
- END -

								
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