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ISSUANCE AND SERVICE OF NOTICE OF ARBITRATION: A SUFFICIENT TRIGGER? Examining the Interpretation of a “Stay Pending Final Determination by Arbitration” under Section 16(1)(b) of CIPAA 2012

INTRODUCTION

The recent case of Bina Puri Properties Sdn Bhd v Jiangsu Provincial Construction (M) Sdn Bhd [2023] MLJU 1089 (“Bina Puri”) adds a nuanced perspective to the ongoing discourse surrounding the interpretation of a “stay pending final determination by Arbitration” under section 16(1)(b) of the Construction Industry Payment and Adjudication Act 2012 (CIPAA). This case raises critical questions about the sufficiency of actions taken by the Applicant to demonstrate the initiation of arbitration proceedings for a stay of adjudication decision.

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DIVERGING APPROACHES AMONG THE HIGH COURTS

Before going in depth into the facts of the case, it is necessary to explore the existing divergences among the High Courts concerning the preliminary threshold for invoking section 16(1)(b) of CIPAA. In Subang Skypark Sdn Bhd v Arcradius Sdn Bhd [2015] 10 CLJ 801, the Court took a position favouring a notice of arbitration as sufficient evidence to overcome the preliminary threshold.[1] Similarly, in Pasukhas Sdn Bhd v Empire Multiple Sdn Bhd and another case [2019] CLJU 757, [2019] 1 LNS 757, the Respondent’s issuance of a Request for Arbitration was deemed sufficient to meet the threshold for a stay under section 16(1)(b) of CIPAA.[2]

Adopting a more lenient approach, the Court in Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2020] MLJU 1162 held that the actual commencement of arbitration proceedings or the fulfilment of conditions precedent, such as referral to mediation or the decision of the contract administrator, is unnecessary. Evidence of the parties’ initiation of the final determination of adjudicated disputes and differences that have been adjudicated is sufficient to satisfy the threshold requirement of section 16(1)(b) of CIPAA.[3]

On the other end of the spectrum, the Court in Raps Solutions Sdn Bhd v Itramas Technology Sdn Bhd [2022] MLJU 729 (“Raps Solutions”), has taken a stringent stance, interpreting section 16(1)(b) of CIPAA to apply exclusively to lawfully commenced arbitrations. The case concerns multi-tiered dispute resolution clauses in the Conditions of Contract, explicitly mandating an “amicable settlement” procedure as a pre-requisite before the parties can resort to arbitration. The Court cited the judgment of the Federal Court in Juara Serata Sdn Bhd v Alpharich Sdn Bhd [2015] 6 MLJ 773 which emphasises the binding nature of terms inserted in an agreement and that allowing a party in breach to deviate from these terms would amount to permitting an advantageous exploitation of its own wrongdoing. In adopting a similar stance, the Court in Raps Solutions underscores the importance of adherence to contractual mechanisms for dispute resolution, asserting the imperative nature of complying with mandatory clauses before invoking section 16(1)(b) of CIPAA.[4]

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NON-COMPLIANCE WITH PAM ARBITRATION RULES

Returning to the facts of Bina Puri, a central issue of the case revolves around the Applicant’s failure to comply with Article 2.1 of PAM Arbitration Rules (2019 Edition). This provision stipulates that the Applicant must submit the prescribed form, along with the application fee, to the appointing authority to initiate an arbitration. Relying on such failure, the Respondent questioned the validity of the Applicant’s application for a stay pending the determination of an arbitration. The Applicant, on the other hand, argued that the issuance of a Notice of Arbitration serves as evidence of meeting the threshold requirement under section 16(1)(b) of CIPAA. The Court aligned with the Respondent’s position that, without submission to the appointing authority in the prescribed form along with the application fee, the Applicant has not validly initiated an arbitration for the purposes of section 16(1)(b) of CIPAA.[5] The stay application was dismissed accordingly.

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CONCLUSION

The exploration of case law showcases a spectrum of interpretations of what constitutes “a pending arbitration” under section 16(1)(b) of CIPAA, ranging from a lenient approach that considers evidence of initiating the final determination process as sufficient, to a stringent stance limiting the application to lawfully commenced arbitrations. The strict approach in Raps Solution has been echoed by the recent case of Bina Puri. Considering this, it is important for the party to adhere to the contractual mechanisms and mandatory clauses so that the stay application under section 16(1)(b) of CIPAA would not be dismissed for failing to satisfy the threshold requirement.

[1] Subang Skypark Sdn Bhd v Arcradius Sdn Bhd [2015] 10 CLJ 801, paras [27]-[28].

[2] Pasukhas Sdn Bhd v Empire Multiple Sdn Bhd and another case [2019] CLJU 757, [2019] 1 LNS 757, para [149].

[3] Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2020] MLJU 1162, para [15].

[4] Raps Solutions Sdn Bhd v Itramas Technology Sdn Bhd [2022] MLJU 729, para [34].

[5] Bina Puri Properties Sdn Bhd v Jiangsu Provincial Construction (M) Sdn Bhd [2023] MLJU 1089, para [44].

 


This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

About the authors

Pan Yan Teng
Senior Associate
Construction & Energy, Civil Litigation, Dispute Resolution (Arbitration & Adjudication)
Harold & Lam Partnership
yanteng@hhq.com.my

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Teoh Jing Jie
Pupil-in-Chambers
Harold & Lam Partnership

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