Under the Construction Industry Payment and Adjudication Act 2012 (Act), an adjudicator is required to determine the adjudicated amount and the time and manner the adjudicated amount is to be paid within the adjudication decision.
The definition of “adjudicated amount” is important as it is used repeatedly in various provisions of the Act, including Sections 16, 28, 29 and 30. In the context of Section 30, this definition becomes crucial, as it grants the prevailing party the right to request direct payment from the principal of the unsuccessful party following an adjudication decision.
Unsurprisingly, the interpretation of the term “adjudicated amount” has given rise to divergent positions, specifically on whether interest and costs awarded in an adjudication decision should be included in the adjudicated amount subject to direct payment. Notably, the Malaysian courts have taken three distinct positions on this matter, as explained below.
Direct Payment Application
Under Section 30 of the Act, the prevailing party under the adjudication decision may request direct payment of the adjudicated amount from the principal of the unsuccessful party. Section 30 of the Act reads:
“Direct payment from principal
(1)If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount, the party who obtained the adjudication decision in his favour may make a written request for payment of the adjudicated amount direct from the principal of the party against whom the adjudication decision is made.
(2)Upon receipt of the written request under subsection (1), the principal shall serve a notice in writing on the party against whom the adjudication decision was made to show proof of payment and to state that direct payment would be made after the expiry of ten working days of the service of the notice.
(3)In the absence of proof of payment requested under subsection (2), the principal shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour.
(4)The principal may recover the amount paid under subsection (3) as a debt or set off the same from any money due or payable by the principal to the party against whom the adjudication decision was made.
(5) This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).”
The Act defines “principal” as the party who has contracted with and is liable to make payment to the unsuccessful party where the unsuccessful party has in turn contracted with and is liable to make payment to the prevailing party in the chain of construction contracts.
However, there is no definition provided under the Act for the term “adjudicated amount”. Thus, one has to look at the interpretation of the term “adjudicated amount” by the courts.
1st position:
Adjudicated Amount is inclusive of the adjudicated sum and interest but excludes costs
In Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020] MLJU 311, the adjudicator made an adjudication decision and directed Synergycentric Sdn Bhd (SSB) to pay Cabnet Systems (M) Sdn Bhd (Cabnet) the sum of RM 1,077,326.36, the interest on the said sum of RM1,077,326.36 and adjudication costs of RM 44,000.90. After the adjudication decision, SSB was wound up and failed to make payment as directed under the adjudication decision. Cabnet filed an application under Section 30 of the Act against the principals of SSB for direct payment of the adjudicated amount.
The High Court held that ‘adjudicated amount’ included the adjudicated sum of RM 1,077,326.36 and the interest on the adjudicated sum only but excluded the adjudication costs. The High Court took the view that if Parliament had intended for a principal to pay the entire sum given in an adjudication decision (including both the adjudicated amount and adjudication costs) under Section 30 of the Act, Parliament would have expressly stated so in Section 30 that the principal shall pay both the adjudicated amount and adjudication costs. Alternatively, Parliament would have used the same wording in Section 28 of the Act that the party who has obtained an adjudication decision in its favour can enforce the adjudication decision (which includes the adjudicated amount and adjudication costs) against the principal.
Given that there was no such express wording in the Act, the Court ordered SSB’s principal to pay Cabnet the adjudicated sum of RM 1,077,326.36 and the interest only.
This position was subsequently followed in Chong Lek Engineering Works Sdn Bhd v PFCE Integrated Plant and Project Sdn Bhd and another case [2020] MLJU 2389, LTK Façade Specialist Sdn Bhd v Sri Mutiara Development Sdn Bhd and other cases [2021] MLJU 1185 and Otis Elevator Company (M) Sdn Bhd v Desaru Convention Centre Sdn Bhd and other cases [2023] MLJU 917. In these decisions, the High Court allowed the prevailing party to recover the adjudicated amount (inclusive of adjudicated sum with interest) from the principal.
2nd position:
Adjudicated Amount is inclusive of the adjudicated sum only but excludes interest and costs
On the other hand, in Bond M&E Sdn Bhd v Pali PTP Sdn Bhd [2022] 11 MLJ 58, the High Court held that the ‘adjudicated amount’ in Section 30 of the Act did not include both interest and costs awarded in the adjudication decision.
The High Court is of the view that the legislature repeatedly used different words such as ‘adjudication decision’, ‘adjudicated amount’, ‘interest’ and ‘costs’ in the Act. As such, the legislature must have intended to refer to different items in the Act. If interest and costs were intended to be included within the meaning of ‘adjudicated amount’ in Section 30 of the Act, express words to that effect would have been inserted in Section 30 because the terms ‘interest’ and ‘costs’ are used in other parts of the Act. Therefore, ‘adjudicated amount’ in Section 30 does not include interest and costs.
This position was subsequently adopted in Peck Chew Piling (M) Sdn Bhd v Panzana Enterprise Sdn Bhd [2022] MLJU 390, Zeta Letrik Sdn Bhd v JAKS Island Circle Sdn Bhd [2022] MLJU 392 and Antah Schindler Sdn Bhd v Maju Holdings Sdn Bhd [2023] 8 MLJ 331.
Premised on the above decisions, there is no dispute that the adjudicated amount does not include the costs awarded by the adjudicator. The conflicting positions by the High Court are merely in relation to the issue of whether the adjudicated amount includes the interest.
3rd position:
Adjudicated Amount is inclusive of the adjudicated sum, interest and costs
On the other hand, in Zedelta Sdn Bhd v Mayland Supreme Sdn Bhd [2023] 10 MLJ 95, the High Court followed Bond M&E and held that the ‘adjudicated amount’ in Section 30 of the Act does not include both interest and costs awarded in the adjudication decision. However, the High Court made an obiter dictum in the judgment that:
“[32] As at the date of this grounds of judgment, the Court of Appeal has, on 9 December 2022, decided in the appeals related to Bond’s case that a proper construct of the term ‘adjudicated amount’ in s 30 of the CIPAA would include both interest and costs awarded in the adjudication decision.”
The above passage from Zedelta was merely an obiter dictum (something said in passing) and not the ratio decidendi (reason for the decision). An obiter dictum is not binding in later cases because it was not strictly relevant to the matter in issue and may only be of persuasive authority in later cases (Kerajaan Malaysia & Ors v Tay Chai Huat [2012] 3 MLJ 149).
Commentary
The definition of “adjudicated amount” is crucial as the costs and the interest awarded under the adjudication decision can be substantial. If the adjudicated amount includes costs and the interest, the prevailing party in the adjudication decision may receive such sums directly from the principal under Section 30 of the Act. This will effectively help alleviate the cash flow problems that often beset the construction industry.
However, by adopting the current interpretation of the term “adjudicated amount”, the prevailing party under the adjudication decision, after recovering the adjudicated amount from the principal, are still required to incur additional legal costs in order to recover the interest and/or costs payable under the adjudication decision from the unsuccessful party.
Recent conversations have sparked deliberations about potential reforms to the Act. The reform committee may potentially advocate for a clearer definition of the term “adjudicated amount” within Section 30 of the Act to include the entire sum payable under the adjudication decision. Such clarity would profoundly contribute to fulfilling the objectives of the Act and ensuring the fair payments within the construction industry.
14 August 2023