CIPAA: When Does it Apply?

Introduction

Construction adjudication under the regime of the Construction Industry Payment and Adjudication Act, 2012 (“CIPAA”) has developed to a reasonably mature state in Malaysia. The bulk of application under CIPAA is from the enforcement and setting applications made to the High Court once an adjudication decision is issued.

CIPAA further provides an exemption to a limited category where if the criteria are fulfilled, the CIPAA regime would not apply. Section 3 of CIPAA provides that:-

“3. Non-application

This Act does not apply to a construction contract entered into by a natural person for any construction work in respect of any building which is less than four storeys high and which is wholly intended for his occupation.”

Thus, there are 3 discernible requirements that are to be read conjunctively and fulfilled in order for a party to be exempted from the CIPAA regime, namely:-

(i) the construction contract was entered by a natural person for any construction work;
(ii) building is less than four storeys high; and
(iii) building is wholly intended for his occupation.

Controversy has arisen as to how the phrase “…less than four storeys high…” is to be interpreted.

Factual Background

CLT Contract Sdn Bhd (“CLT”) was appointed by Tan Sri Dato’ Yap Suan Chee (“Employer”) as the contractor for the works “Supply Install Plaster Ceiling Work” for the project known as “Cadangan Meroboh dan Membina Semula Sebuah Rumah Banglo 3 Tingkat Dengan 2 Tingkat Aras Bawah Tanah Berserta Sebuah Kolam Renang Di Atas 37902 & 37903, Persiaran Negeri Sembilan, Mukim Kuala Lumpur, Wilayah Persekutuan” (“Project”).

Disputes arose between CLT and the Employer to the balance payments due, the release of the retention and the GST payable. Adjudication proceedings was commenced by CLT and during the same, the Employer objected and argued that the CIPAA regime did not apply to him given that the Project was less than 4 storeys high.

High Court

The Employer filed an originating summons at the High Court for, among others, a declaration that CLT’s adjudication proceeding was null and void given the exemption provided for under section 3 of CIPAA.

The focus during the hearing at the High Court was on the term “storey”. CLT relied on the Uniform Building By-Laws 1984 (“UBBL”) to demonstrate that the total stories in the Project was 5 and therefore, the Employer could not rely on section 3 of CIPAA. On the contrary, the Employer argued that the Project was only 3 stories and that the 2 stories constituting the basement ought not to be counted.

The High Court Judge determined that (see Tan Sri Dato’ Yap Suan Chee v CLT Contract Sdn Bhd [2021] MLJU 1964):-

• while the UBBL was illustrative on how the term “storey” was to be defined, it was by no means determinative;

• a plain and literal interpretation ought to apply to the term “storey” (relying on Asia Pacific Higher Learning Sdn Bhd (registered owner and licensee of the higher learning institution Lincoln University College) v Majlis Perubatan Malaysia & Anor [2020] 2 MLJ 1);

• the meaning derived from the Cambridge Dictionary, Oxford Learner’s Dictionary, Macmillan Dictionary and Merriam-Webster Dictionary all indicated that the term “storey” meant a level of, or in, a building;

• the 5 construction drawings for the Project adduced clearly demonstrated that 5 floors are involved.

As a result, the High Court held that the Employer could not rely on section 3 of CIPAA.

Court of Appeal

The Employer was dissatisfied with the High Court’s decision and appealed to the Court of Appeal.

On 20^th May 2022, the Court of Appeal affirmed the High Court’s decision.

Analysis and Comments

At the Court of Appeal, the Employer had retained new counsels and focused the Employer’s argument on the term “high” instead. Putting aside on the question of whether a party could raise a new point on appeal, that was not argued at the lower Court, to argue that the lower Court erred, CLT argued that the term “high” is synonymous to “height” when describing the height of a particular structure or building.

Further, the term “height” was defined under the UBBL and that there was no distinction under the UBBL where “height” is concerned, to be limited to structures or storey/level above ground only. To interpret the phrase “… less than four storeys high …” as those being above ground only would to impose a condition not found in CIPAA. In any event, the Employer did not produce any authority or support the argument that the term “high” ought to apply to ‘above ground’ structures or building.

This case represents the first of its kind on the interpretation and applicability of section 3 of CIPAA. With the benefit of hindsight, it would have been prudent to expressly defined both the terms “storey” and “high” in this context as it is one of the criterion for the non-applicability of section 3 of CIPAA.