01 Construction Law - Introduction To Construction Law and Alternative Dispute Resolution

 

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 CONSTRUCTION LAW

Introduction to Construction Law and Alternative Dispute Resolution (ADR)

 

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After attending this lecture, you (the students) should be able to: 1. have have an overview overview of what is constru construction ction law law and how it is taught taught overseas, overseas, particularly in the context of the American, Australian Australian and UK Universities. 2. have an overview overview of the alternative alternative dispute resolution resolution methods methods for mediation, mediation, adjudication, adjudicatio n, arbitration, litigation and the specialist construction court. 3. have an overview overview of professional professional bodies bodies such as the Malaysian Malaysian Society of Adjudicators (MSA), the Malaysian Institute of Arbitrator Arbitratorss (MIArb), the Kuala Lumpur Regional Centre for Arbitration (KLRCA) and the Society of Construction Law Malaysia (SCL Malaysia).

 

1.0 INTRODUCTION Paula Gieber (2010) in her article titled: “The Teaching of Construction Law and the Practice of Construction Law: Never the Twain shall meet?” reported that although the overwhelming majority of major law firms in the United States, Australia  and UK promote construction construction law as one of their areas of expertise, the overwhelming majority of law schools in these three jurisdictions do not offer construction law as a subject in their Doctor of Jurisprudence (JD) or Bachelor of Laws (LLB) programs. How could it be thatlaw an area of law law, thatlaw is soschools widely practised, is contrast not widelywith taught? The construction courses in, the is in stark the construction law syllabus and offerings in the architecture, engineering and building faculties. It appears that universities are producing construction professionals who have an understanding of the laws regulating their industry, but not lawyers who have the knowledge to advise and represent clients on construction-related issues. Paula Gieber Gieber in her article also briefly analyses the meaning and scope of the term ‘construction law’, before examining the extent to which it forms part of the law school syllabus and offerings in the United States, Australia a nd UK. It was then followed by a critical analysis of the purpose of teaching construction law in law schools in the United States, Australia and UK and a considera consideration tion of the knowledge and skills that law students should have at the end of their study of construction law. law.

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4 2.0 WHA WHAT T IS CONSTRUCTION LAW? Construction law is an umbrella term that covers all the legal principles and laws relating to the construction industry. Construct Construction ion law is multi-faceted in terms of the legal principles and laws that are covered by the umbrella term. Although a significant component of any construction law course is contract law, construction law is much more than this and involves the contextual understanding of a variety of legal principles, including torts, equity, statutory and regulatory laws. For this reason, it is preferable that any student wishing to enrol in a construction law course should first have successfully completed courses in law of contract and torts. The construction industry is extremely diverse in its processes and procedures, as is construction law, law, and many construction lawyers have sub-specialit ies within construction law. For example, ‘front end’ construction lawyers are involved at th e   commencement   of the project, with tasks such as advising on the most appropriate procurement method and the drafting of the contracts involved in any construction project, while ‘back end’ construction lawyers specialise in the resolution of disputes during the interim stages of construction and at the completion  stage of the project. A construction law course for law students therefore needs to cover both the “front end” and “back end” of construction law as well as the aspects of construction law that span both these sub-specialities.

 

5 3.0 CONSTRUCTION LAW LAW IN LAW SCHOOLS Furthermore, Paula Gieber (2010) recommended in her article that the American Association of Law Schools should be encouraged to identify construction law as a speciality area. Her comments were made more than six years ago, yet the situation remains unchanged, with construction law still a largely unrecognised discipline within law schools in America, Australia and UK. There has been no attempt to comprehensively map the offering of construction law in law schools around the world. Her article on the teaching of construction law is a modest beginning, documenting the instances of construction law being offered as an elective subject in Juris Doctor programs in the t he United States and Bachelor of Laws (LLB) ( LLB) programs in Australia and UK. While there has been no attempt to record the offering of construction law electives in law degrees around the world, there t here has been an effort to report the extent to which construction law forms part of   the masters programs.  For example, the University of Melbourne in Australia and King’s College (London) in the UK both offer specialist masters degrees in construction law. These two programs are open to lawyers, architects, engineers, construction managers, quantity surveyors and contractors; that is, anyone working in the construction construct ion industry who has an undergraduate degree, preferably in the built environment discipline with sufficiently high grades g rades to satisfy the t he entrance requirements. requirements.

 

6 3.1 MASTERS CONSTRUCTION LAW PROGRAMS The specialist masters construction law programs do not lead to a qualification that entitles a graduate to be admitted as an attorney or solicitor/barrister or solicitor. Rather,, these master degrees Rather deg rees provide graduates with in-depth specialist knowledge of construction law. A specialist masters degree in construction law serves a valuable purpose in providing those working in construction law or the t he construction industry with a more extensive understanding and expertise about this area of law. However, they do not redress the problem of law schools failing to offer their However, undergraduate undergradu ate law students an introductory construction law subject as part of their legal education. Overwhelmingly, Overwhelmingly, the construction law offerings that are available availab le within law schools are taught by practising lawyers, rather than full-time academic staff. This can impact negatively on the effectiveness of the course. Although lawyers who practise in this area of law will know a lot about the subject matter,, they may have given little thought to how to teach the subject effectively. matter Knowing how to teach is as important to the success of a subject as knowing the substantive substan tive content. It is clear that t hat the success of a construction law course depends on having it taught by someone who not only understands construction law, but also understands the pedagogical principles that underpin effective teaching.

 

7 4.0 TEACHING CONSTRUCTION LAW LAW While there is abundant literature about teaching construction law to non-law students there is lack of literature of teaching construction law to law students and it is no doubt reflective of the fact that construction law has, for some time, been a firm feature of most architecture, engineering, building, construction management and quantity surveying courses whereas whereas it is still a rarity in the LLB law programs. Another researcher researcher, Philip Bruner (2007) undertook a scholarly analysis of t he historical emergence of construction law ( see, William Mitchell Law Review 1, 1314).  His article traces the origin of the standard form of construction contracts, the enactment of legislation regulating payments on construction projects, the development developm ent of construction law principles by the courts and the t he advancement of specialised construction dispute resolution practices and procedures. In a short section devoted to construction law scholarship, Bruner noted that legal scholars pay little attention to the law relating to construction and suggested that this may be due to legal scholars being unwilling to acquire practical understanding of the complexities of the construction process and hence have been unable to develop significant capability to contribute to the development of the laws underpining the construction industry. It is time for legal scholars to play a role in the advancement of construction law through education and research in this important discipline.

 

8 Prof. Allen Overcash, an Adjunct Professor of Construction Law at the University of Nebraska Law School argued convincingly the case for teaching construction law to undergradua undergraduate law studentsininthe an Construction art icle: The case article: for 5, construction lawgrounds: education Lawyer 29 (3) , on two (2009) which te was published First, it is important that the legal professions have an understanding of the construction industry and the construction related laws that govern it. Prof. Allen Overcash noted that the construction industry is the largest single industry in the United States, employing more than 5 per cent of the country’s workforce. Second, the peculiar legal issues and problems faced by the construction industry are not covered in the syllabus and curriculum for law students.   While a law student studying contract law may encounter some construction cases in their case book, construction contracts contracts are invariably not a focus of the law of contract course. course. Furthermore, construction disputes are rarely decided by simply interpreting the express terms of a written contract and require ‘an intensive investigation of the facts and laws of the case and the relationship of the numerous parties who are attempting to perform the project’. Thus, Prof. Allen Overcash concludes that a law graduate graduat e who attempts to advise a client with a construction problem based only on the interpretation skills they acquired through studying the law of contract and the law of tort will be struggling to provide an effective effective advice to the client.

 

9 5.0 WHA WHAT T KNOWLEDGE AND SKILLS DO CONSTRUCTION LAWYERS NEED? Like many complex areas of human endeavour, the construction process has spawned its own unique customs, practices and technical terminology. Thus, an aspiring construction lawyer wanting to practise in the area of construction law needs to understand how the construction industry operates, be familiar with the technical terminology used in the construction industry and have an appreciation of the issues that arise and how they can best be avoided, managed or resolved. Construction clients expect their construction lawyers who are handling their construction cases or disputes to have at least a fundamental understanding of technical technic al aspects of constructio construction n industry practices and processes, so that they do not have to spend too much time educatin educating g them about the basics. A construction law subject should therefore ensure that law students learn and understand how the construction industry operates, its processes and practices, who the players and stakeholders are, and the respective roles they play in the construction process. In addition, it is obviously crucial and vital that construction lawyers should understand and can apply the case laws as set out in the court decisions. These include the terms that the courts have implied into the construction contacts, based on the principles of contract, torts, equity and construction industry good practices. 

 

10 The decision in many a building case has turned on whether the court has found there to be aninto implied term in the construction contract. materials incorporated the structure willparties’ be of specified quality or thate.g, thethat design of the building will be fit for its purpose. Thus, the law students should learn about key construction cases that have influenced the development of construction law. Not only do construction lawyers need to understand the construction industry, its processes and practices and be familiar with construction law jurisprudence, but they also need to know and be able to advise clients about the legislation regulating the construction industry. In most jurisdictions, there are statutes and codes that govern safety on construction sites, licensing of persons involved in construction, payment obligations and insurance requirements. requirements. All of these laws affect the way parties to a construction project conduct themselves and manage their relationship relationships. s. It is therefore essential that a construction lawyer be able to advise clients about the impact of the regulatory framework on their projects. The construction industry ‘enjoys’ ‘en joys’ a reputation of being highly adversarial and litigious. For these reasons, there is a focus on reducing the risk of a dispute arising during a construct ion project and resolving any dispute that does arise in an efficient and timely manner.

 

6.0 STANDARD FORM OF CONTRACT The construction industry relies heavily upon the standard form of contract (e.g. the PAM 2006 standard form of contract, the JKR standard form of contract and the CIDB standard form of contract). As students of construction law, you should learn about the role that these standard forms of contract play, the importance of the understanding of the standard form of contract and the hazards in amending the standard form of contract. By acquiring such knowledge of the various types of standard form of contract, you will be able to advise your clients on the selection of an appropriate standard form of contract for their projects and any modifications to be made to the standard form of contract that should be considered, if required. 6.0.1 CONSTRUCTION CONTRACTS Traditionally, the construction process begins with an architect or engineer Traditionally, preparing the design, contractors bidding or tendering for the work, and finally the construction being undertaken. This can be done pursuant to a fixed price/lump construction sum contract whereby the contractor contractor undertakes to complete the works within an agreed time period and for an agreed amount. The process of ‘design and build’ does not allow for fast-tracking of work, because construction cannot begin until the design is fully completed and documented. In a traditional construction contract contract there is no opportunity for contractors to contribute their experience and skills into the design, since they become involved only after the design is fully completed.

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12 As construction management or quantity surveying students of construction law, you should be introduced to various types of construction contract, which although less common than the fixed price/lump sum contract, are still traditional types of contract that you are likely to come across in the practice of construction law. These include cost-plus contracts, where the contractor undertakes undertakes the work and is paid the actual cost of the work (labour and materials) plus a fee, generally a percentage of the cost; and the schedule of rates contracts which are used where the precise scope of the works cannot be quantified at the time the t he contract is entered into. One of the objectives of this lecture is to ensure that students have a understanding and overview of the way in which the construction industry operates; in particular, its practices when it comes to construction contracts. This lecture on construction law is designed to enable construction management and quantity surveying students to acquire the basic knowledge and skills necessary to practice in the area of construction law and alternative dispute resolution (ADR) not as a construction lawyer but as a construction manager or a quantity surveyor or an ADR practitioner. practitioner. Understanding the case laws and statutory laws relating to the construction Understanding industry in the local jurisdiction and the contractual framework that applies to the majority of construction projects is a basis for such knowledge acquisition.

 

14 7.0 QUALITY OF WORK ISSUES Allegations of defective work provide another fertile ground for payment disputes. What warranties (express and implied) does the contractor provide to the owner regarding the end product? What obligations does the contractor have to remedy the allegedly defective work, both during construction and after completion? What remedies can an owner pursue under the contract, and elsewhere? What is the measure of damages for defective work: rectification costs or diminution in value? As students of construction law, you should understand the way defective work is dealt with in construction contracts, as well as potential extra-contractual causes of action, such as professio professional nal negligence or breach of any statutory duties. 8.0 VARIATION / CHANGE ISSUES It is extremely rare for a construction project to be completed strictly in accordance with the contract drawings. Invariably, variations/changes are required. This may be because the owner has changed his mind regarding an aspect of the t he design; the ground conditions are not what were antici pated and therefore a re-design i s required; or the original design has proven to be impractical when it comes time to building the structure. Construction contracts anticipate that changes will be required as the building progresses and include clauses allowing for variations.

 

9.0 PAYMENT ISSUES IN THE CONSTRUCTION INDUSTRY Lord Denning MR famously described cash flow as the life blood of the construction industry. As a result, issues regarding late or non-payment of claims provide fertile grounds for payment disputes. At the peak periods of construction, contractors can expend huge sums of money on labour and materials in a very short period of time. If reimbursement of these financial outlays does not occur in a timely manner, contractorss (and subcontrators) can quickly become insolvent. It is for this reason contractor that all construction contracts contain provisions that govern payments to the contractor and most jurisdictions have legislative regimes to provide contractors with some level of security for payment. These range from the use of performance bonds, bank guarantees and regulatory regimes that provide for the adjudication of payment disputes and judicial enforcement of the adjudication decision.   9.0.1 INSTITUTIONAL RULES AND STATUTORY LAWS (Adjudication and Arbitration) As students of construction law you should learn about the institutional rules and statutory laws relating to adjudication and arbitration that are applicable in Malaysia. For the construction management and quantity surveying students taking this construction law course, you shall learn about the application of the PAM 2006 clauses for adjudication and arbitration and the application of the JKR clauses for arbitration in the Contract Administration or the Practice and Procedure course.

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10. WHAT IS ALTERNATIVE DISPUTE RESOLUTION (ADR)? ADR is a collective term for the methods that parties can use to settle their disputes without resorting to court proceedings. Traditionally, the two most common methods of ADR are mediation and arbitration. Statutory adjudication is a process for the resolution of construction payment disputes which was introduced by the Construction Industry Payment and Adjudication Act (CIPAA 2012) on 15 April 2014. This lecture (and subsequent lectures) are designed to enable you (construction management and quantity surveying students) to acquire the fundamental knowledge of construction law and ADR and its applications. You will be introduced to the various available ADR methods, mechanisms and techniques for resolving construction related disputes disputes such as mediation, adjudication, arbitration, litigation and also the relevant statutory and case laws relating to the Construction industry. As students of its construction should learnand about way how each method of ADR works, advantageslaw, andyou disadvantages, the the different paths to ADR, for example, via a contractual clause or requirement in the standard form of contract or via an order or judgement of the High Court. It is hoped that after you have taken this course and graduated as construction managers or quantity surveyors, you can advise your client on which method of ADR to pursue, and skilfully represent them in the ADR process as the client's representative, representative, if it is required to do so.

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16 10.1 What IS MEDIATION? Mediation is a voluntary process in which a mediator facilitates communication and negotiations between disputing parties to assist the parties in reaching an amicable settlement. The Mediation Act (2012) seeks to facilitate this process. Generally, the parties are free to agree on the t he appointment of any person as their mediator mediator.. If parties cannot come to a consensus, they can request the Malaysian Mediation Centre (MMC) of the Bar Council to appoint a qualified mediator mediator from its panel. Any agreement arising from a successful mediation is reduced to writing in a Settlement Agreementt signed by the parties. In the event the mediation is not successful, Agreemen parties may proceed to pursue their respective rights in arbitration or litigation . Very often, parties commence legal proceedings without first attempting mediation. In such circumstances, it is common for the judge to suggest that parties attempt mediation. Where the mediation is unable to bring about an amicable settlement, the case is returned to the hearing judge for disposal. All disclosures, admissions and communications made in and during mediation sessions are made on a without prejudice basis. This means that in the event the mediation is unsuccessful, parties involved in the mediation cannot later use or repeat any disclosures, admissions and communications in mediation to further their case in arbitration or litigation.  

 

17 10.2 ST STA ATUTORY ADJUDICATION IN MALAYSIA The consistent growth of the construction industry has continued to give rise to many construction-related disputes. Some problems in the construction industry include speculative development without sufficient financial capital, capital, the extensive period of time, the high cost of existing dispute resolution mechanisms and the unequal bargaining powers between parties have led to abuse. These problems bring undesirable effects to the industry and ultimately the economy. Insolvent contractors and subcontractors and abandoned projects are  just some of the many m any consequences. consequences . To address these problems, p roblems, the Construction Industry Industry Payment and Adjudication Act 2012 (Act 746) (CIPAA (CIPA A 2012) was passed and came into force on 15 April 2014. The adjudication proceeding proceeding as a method of dispute resolution is binding unless it is set aside by the High Court, the matter is settled by both parties in writing, the dispute is finally decided by arbitration or the court, or there is a stay of adjudication decision pursuant to sections sect ions 13 and 16 (CIPAA 2012). If either or both parties do not agree with the adjudication decision, the case can be reopened by arbitration or litigation at the conclusion or termination of the construction contract. contract.

Datuk Professor Sundra Rajoo, Director of the KLRCA

 

18 10.2.1 WHAT IS THE PURPOSE OF CIPAA 2012? The purpose of CIPAA 2012 is to provide a mechanism for dispute resolution through adjudication and to provide remedies for the speedy recovery of payments in order to ease the cash flow in t he construction industry. This Act app lies restropectively to every construction contract made in writing before 15 April, 2014 relating to construction construction work carried out wholly or partly within Malaysia and include construction contracts entered entered into by the government. Construction here carries a wide meaning and covers a wide array of construction works in different areas and even includes the oil and gas industry and telecommunication. The Act does not, however, apply to a construction contract entered into by an individual for any construction work in respect of any building which is less than four storeys high and which is wholly intended for his occupation. Adjudication has a judicial element in that the adjudicator hears both sides and decides the dispute. The main thing that distinguishes arbitration and litigation from adjudication is that arbitration and litigation are usually the last options resorted to only when parties are ready to terminate the contract. Adjudication under CIPAA 2012 is concerned with getting a quick decision in relation to the resolution of construction-related payment disputes. It is a summary procedure and an interim solution which in theory should not stop or delay the progress of the contrac contractt or construction works.

 

19 10.2.2 WHO IS AN ADJUDICATOR AND WHAT IS HIS ROLE? An adjudicator is a qualified and an independent industry expert who need not necessarily be a lawyer. He can be a lawyer, an architect, an engineer, a construction manager or quantity surveyor surveyor who is appointe appointed d by the parties to assess the merits of an adjudication claim and decide on it based on the CIPAA 2012, the rules, regulations, and circulars of the Kuala Lumpur Regional Centre for Arbitration Arbitration.. The adjudicator has his duties and obligations stipulated under section 24 (CIPAA 2012). He shall have the powers and discretion under section 25 to establish the proceduress in conducting the adjudication proceedings, draw on his own knowledge procedure and expertise, carry out inspections as is deemed necessary and to award financing costs and interest, amongst others. Despite the powers and discretion being in the adjudicator’s adjudicato r’s hands, an adjudicator must apply the terms of the contract. To qualify as an adjudicator in Malaysia, a person needs to have a law degree or a relevantt degree in the built environment, relevan environment, at least 7 years of working experience in the construction industry, successfully complete the KLRCA Adjudication Training Programme, be awarded the KLRCA Certificate in Adjudication and be empanelled on the KLRCA's Panel of Adjudicator Adjudicators. s. Since CIPAA (2012) came into i nto operation on 15 April, 2014, six training t raining programmes programmes have been held and about 500 KLRCA's panel of adjudicators are now qualified and ready to adjudicate payment disputes.

 

20 10.2.3 THE ROLE OF THE KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION By virtue of Part V (CIPAA 2012), the Kuala Lumpur Regional Centre for Arbitration (KLRCA) is the default appointing authority and administrative body for statutory adjudication in Malaysia Malaysia It is responsible for the determination of the adjudicator's fees, standard terms of appointment, setting of the competency standards and criteria required of an adjudicator pursuant to section 32(a). The adjudicator and KLRCA as the default appointing and administrative body are entitled to immunity. 10.2.4 THE MALAYSIAN SOCIETY OF ADJUDICATORS (MSA) The Malaysian Society of Adjudicators (MSA) was launched on 5 July 2013 with the objective of promoting ethical and professional standards of service of adjudicators in Malaysia. It aims to encourage and develop statutory statutory adjudication as a method of resolving construction disputes without denouncing other dispute resolution methods and also to provide a forum and communication channel for which adjudication practices and issues may be discussed among professionals. The MSA keeps adjudicators updated on current policies, practices, procedures and standards, it is also tasked with providing training and educational facilities for professionals who would like to become adjudicators. Malaysia joins developed countries such as Australia, New Zealand, United Kingdom and Singapore where the practice of adjudication has gained popularity as an alternative dispute resolution mechanism.

 

21 10.3 ST STA ATUTORY ARBITRA ARBIT RATION TION IN MALA M ALAYSIA YSIA Arbitration is a private and judicial determination of a dispute by an independent third party. The difference between mediation and arbitration is that parties maintain full control of the workings and outcome of the mediation; whereas in arbitration, the arbitrator arbitrator decides the outcome of the proceedings and the parties are bound by that decision. Arbitration is similar to court proceedings in that the arbitrator (like the judge) will decide the dispute; the difference is that parties can decide on the appointment of the arbitrator and the rules and procedures to be applied in the arbitration. Parties to a contract may agree by way of an arbitration clause to refer any dispute that might arise in respect of that contract to arbitration. The Arbitration Act 2005 is the law governing statutory arbitration in Malaysia. The UNCITRAL Model Law on International Commercial Arbitration has been adopted as part of the working provisions of the Act. Parties are at liberty to decide on the number of arbitrators that will decide the arbitration matter. In the event, the parties cannot mutually agree on the choice of an arbitrato arbitratorr (or arbitrators), the seat of the arbitration and the rules to be applied to the arbitration, the parties can consult the Kuala Lumpur Regional Centre of Arbitration (KLRCA). Pursuant P ursuant to the Arbitration Act 2005, the KLRCA is the default appointing and administrative body.

 

22 10.4 THE MALAYSIAN INSTITUTE OF ARBITRATORS (MIArb) Just like the Malaysian Society of Adjudicators which was set up by adjudicators for the adjudication profession profession, , the MIArb was set up in 1991 by arbitrators arbit rators for the arbitration profession with the aim of promoting the resolution of disputes by arbitration. Since its inception, MIArb’s panel list of arbitrators has expanded to include respected individuals with eminent qualifications and experience in a variety of professional disciplines from industries such as building and construction, engineering, banking, finance, law, law, insurance, service and manufacturing industries. MIArb has widened its objectives to promoting and facilitating other methods of ADR such as mediation and adjudication. MIArb has developed its Mediation Rules and Arbitration Rules for the mediator's, the arbitrator's and the parties’ adoption to govern the practice and procedure of their mediation and arbitration. MIArb has a proud history of educating the public and training its members in ADR. MIArb also runs assessment courses for individuals to qualify as Fellows of MIArb. Over the years, MIArb has built strong collaborative relationships with local and international ADR institutions, industry associations and centres of higher learning to raise awareness and expand the use of ADR methods. MIArb is also actively engaged in ADR law reform. MIArb is a non-profit and non-governmental non-governmental Institute.

 

As arbitration proceedings do not come within the purview of the Legal Profession Act 1976, parties may choose to be represented by a legally trained construction professional such as an architect, an engineer, a construction manager or a quantiy surveyor to represent them in the arbitration proceedings. Nevertheless, in practice, parties to arbitration proceedings are commonly represented by lawyers. l awyers. Although, arbitrators do not necessarily have to be lawyers, they must be independent and impartial. Professional Professional arbitrators are usually Fellows of the Chartered Institute of Arbitrators (UK) and empanelled on the KLRCA's Panel of Abrbitrators. Parties are advised to appoint arbitrators who have sufficient knowledge and experience in arbitration laws as well as the technical knowledge on the subject matter in dispute. The arbitrator is required to give a reasoned award, that t hat is, an award explaining the grounds for his decision. In the event a losing party refuses to comply with an award, the winning party may apply to the Construction Court to register the award and pursue enforcement proceedings. There is no appeal against an award made in Malaysia under the Arbitration Act 2005. The only challenge that can be made is an application to the Construction Court to set aside the award. Such an application has to be within 90 days of the receipt of the award. The grounds for setting aside such an award are limited to fraud or breach of the rules of natural justice. We shall be looking at the process and procedure procedure of setting aside of arbitration awards and the stay of court proceedin proceedings gs in a subsequen subsequentt lecture on construction litigation.

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24 If ADR is unsuccessful in resolving a construction dispute, the disputing parties are likely to end up in construction litigation. Construction litigation is in many ways unique, and often conducted within a specialist court. We shall look at construction litigation in a subsequent subsequent lecture and it will focus on various various aspects of construction litigation that distinguish it from other forms of litigation. At the conclusion of that lecture, you should be able to identify, understand and apply the process a nd procedural rules that have been developed within the construction court to more effectively manage complex construction litigation such as stay of proceedings, etc. As students of construction law, you should learn about the innovative rules and procedures that some specialist courts (for example, the construction court) court ) have developed in order to respond to certain aspects of construction litigation, including, including, for example, the ‘outsourcing’ of technical aspects of the dispute for determination by an expert witness, that is, a person with specialist technical skills, such as an architect, an engineer, a construction manager or a quantity surveyor with profound specialist technical skills, preferably, with a working knowledge of construction law and ADR. The trial judge is free to accept or reject the findings of an expert witness but, in practice, an expert witness's report is generall generally y accepted by the trial judge, unless there is a failure to adhere to the procedural requirements or due process.

 

10.4 THE CONSTRUCTION COURT IN MALAYSIA MALAYSIA Malaysia is the second country in the world after the UK to have established a construction court. In the UK, the specialist construction court is known as the Technology Technology and Construction Court (TCC).

Construction Court, Kuala Lumpur and Shah Alam Established. 1 April, 2013 High Court Judges

It was reported in The Star Newspaper on 5 October 2012 that “The Construction Industry Development Board (CIDB) said: Justice in the construction sector would be best served by statutory adjudication, arbitration and the construction court. Speedy dispute resolution often requires knowledge of industry intricacies and technical complexities. A Malaysian Bar Council representative added that the t he Bar Council is strongly in support of the construction court as there is sufficient case load to justify the setting of the construction court by the Malaysian Judiciary.”,, and on 13 January 2013, the Chief Justice Tun Arifin Zakaria Judiciary.” said: “Construction cases are a re unique as they involve technical issues, multiple parties and varying terms of payment. Thus, a specialist construction court would be beneficial to the industry. By having specialised judges, it will help in the speedy disposal of such cases. A construction court will be set up in Kuala Lumpur and Shah Alam soon to hear construction disputes as demand for projects continue to rise”.

Yang Arif Datuk Mary Lim

Yang Arif Datuk Lee Swee Seng

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26 10.4.1 THE RESOLUTION RESOLUTION OF CONSTRUCTION INDUSTRY DISPUTES IN MALAYSIA Adjudication, Adjudica tion, Arbitration or Litigation in the Construction Court? Traditionally, Malaysian construction-related disputes are resolved in mediation and arbitration, or otherwise in the normal courts of law. These construction-related disputes are often technically complex involving mixed issues of fact and law. Both modes of dispute resolution have in recent years been increasingly perceived as inadequate and unsatisfactory by the users especially in respect of cost and time taken to dispose the construction disputes. is observed from the UK experience that construction justice is best served by It the trinity of statutory adjudication, construction arbitration arbitration and the specialist Technology Technology and Construction Court (TCC). Thus, by the initiative of the Construction Industry Development Board (CIDB) to transform the Malaysian construction industry alternative dispute resolution landscape in line with the vision of the Construction Industry Master Plan, the Construction Industry Payment and Adjudication Act 2012 (CIPAA) was enacted in June 2012 after several years of debate. This Act came into operation on 15 April, 2014 and is applicable restropectively to all written construction contracts entered into prior to 15 April, 2014. The specialist Construction Court was establishe established d by the Malaysian Judiciary on 1st April 2013 in Kuala Lumpur and Shah Alam as a branch of the High Court at the joint request of the CIDB and the Bar Council of Malaysia.

 

27 Meanwhile, it is noted that the KLRCA has in the last couple of years also undergone undergone rapid transformation transformation and is actively promoting arbitration as the preferred ADR method. The Arbitration Act (2005) has been revised by the Malaysian Government in 2011 to strengthen arbitration. The transformed ADR landscape and availability of these alternative modes of construction dispute resolution pose a challenge for both the construction lawyer and client to determine and select the mode that is best suited for the dispute. Arbitration is available as a mode to resolve the dispute if there is an arbitration agreement between the parties. The existence of the arbitration agreement is seldom a problem in construction contracts at the higher hig her level of construction contracting pyramid where standard forms of contract are used. Problems are often seen in subcontracts especially bespoke ones at the lower level. The arbitration is confined to the parties to the arbitration agreement and there cannot be an inclusion of other third parties except by consent even though the disputes may be related ones. The arbitrability of the subject matter in dispute is dependentt on the scope of the arbitration agreement. Most contractual issues are dependen encompassed by the arbitration agreement agreement but related issues such as professional negligence in tort may not necessarily be so included. In such situations, the dispute involving negligence cannot be resolved satisfactorily together in the arbitration.

 

28 As often prescribed in the arbitration agreement in the construction contract, there are certain limitations in the commencement of arbitration proceedings. The commencement of arbitration is usually postponed till the completion of the works or termination of the contract. Besides, Besides, it is normal practice for the referral of and obtaining the decision of the contract administrator or adjudicator to be made the condition precedent to the initiation of the arbitration proceedings. There are also standard forms of contract for large commercial projects that require reference to mediation or adjudication as the condition precedent to the initiation of arbitration. The limitation to the commencement or initiation of arbitration proceedings is an important consideration particularly when speed of obtaining the arbitration arbit ration award is an essential consideration. The arbitration award is recognized and enforceable as a judgment of the High Court (for example, the specialist construction court of Kuala Lumpur and Shah Alam). Very importantly, the arbitration award is enforceable abroad by virtue of the New York Convention (1958). This is the distinct superiority of arbitration over the other modes of dispute resolution. The enforceability of the dispute resolution outcome has to be considered when one of the disputing parties is a foreign entity since there are many international contractors and developers operating in Malaysia and their assets are housed in their home country.

 

29 10.4.2 LITIGATION IN THE SPECIALIST CONSTRUCTION COURT OF MALAYSIA The specialist Construction Court is a branch of the High Court of Malaya and has unlimited monetary jurisdiction as well jurisdiction to grant equitable reliefs such as specific performance, injunctions, etc. The jurisdiction of the Construction Court that has been established as from 1st April 2013 is as follows: a) Building, engineering or other construction disputes including; (i) Claims arising from the Construction industry Payment and Adjudication Act, CIPPA 2012 (Act 746) excluding judicial review; (ii) Claims relating relating to performance performance bonds, bonds, guarantees guarantees and insurance; insurance; (iii) Claims in connection with quality quality of goods sold or leased, and work executed executed or materials supplied or services rendered rendered;; (iv) Claims in connection with the environment environment (e.g. environment environment pollution pollution cases); b)

Claims by or against against engineers, engineers, architects, architects, surveyors, accountan accountants, ts, consultants and other specialist consultants consultants in connection with services rendered;

 

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Claims agaidevelopment against nst local local authorities autho rities in connection with their statutory duties in relationbytoorland and building construction;

d)

Arbitration related proceedin proceedings gs including including challenges against arbitration awards; and

e) Appeals from the subordinat subordinate e courts. The jurisdiction of the Construction Court is wide and though the local jurisdiction as prescribed is confined to the t he Federal Territory Territory of Kuala Lumpur and Selangor, it is possible by consent of the parties to transfer construction related disputes from the High Courts in the other States of West Malaysia to the Construction Court. It is the constitutional right of the parties to refer any dispute to the High Court or in the case of a construction related dispute to the Construction Court. Unless a stay of proceedings is applied for and obtained, the parties can still have their dispute resolved in court notwithstanding that there is an arbitration agreement. Unlike an arbitration tribunal, the Construction Court is able to determine multi-party disputes in the same forum and this is important in relation to defective work dispute where there is often the claim against both the contractor and the designer.

 

31 The judgment of the Construction Court is final and binding subject to the usual appeal to the Court of Appeal and Federal Court with leave. Judgment of the Construction Court is subject to review on appeal and is in that t hat sense of lesser finality than an arbitration award where the parties have opted out of court intervention. As discussed earlier on enforce enforcement ment of the adjudication decision, there is the similar limitation on the enforcement enforcement of the judgment of the Construction Court abroad. TheRules courtof proceedings thethe Construction Court adversarial and governed by the Court (2012)inand Evidence Act 1950are as modified by Practice Directions (PD) that will likely be issued by the Construction Court in due course. As seen from the workings of the High Court in recent years, the average time frame to commence and conclude a case after trial is one year. Thus, it is foreseeable that the construction dispute resolution in the Construction Court will be an expedited one compared with arbitration. This expedited litigation procedure will likely involve adopting techniques utilized in the UK Technology and Construction Court (TCC) such as the imposition of limited time hearings and use of expert witnesses to assist and facilitate the court on the factual portions of the dispute particularly on issues of causation and quantum of the claims.

 

32 Besides, the Construction Court is also implementing electronic filing, retrieval, presentation and management of documentary evidence. Presently, the filing fili ng fee of a case in the Construction Court is nominal at a lump sum of RM 400. In view of the nominal fee that is subsidized by public funding, it is thus fair to expect that the disputing parties will not be afforded the opportunity to present their case to the fullest but subject to supervision by the judge on time management. The parties must however be represented by a lawyer (Advocate & Solicitor) and that will incur costs of representation. The proceedings in the Construction Court are public and there is no privacy and confidentiality protection. In other words, the public has access and is able to view the entire proceeding in the open court room. All judgments of the Construction Court will be published in a dedicat dedicated ed law report. It can be surmised that there is no one mode of dispute resolution that fits all circumstances. As always in most human endeavours, it is situational and the best circumstances. fit has to be chosen. The sensible first step is perhaps to begin by exclusion to wit, and dispensing the mode that is inapplicable due to its inherent jurisdictional limitation. Hence, it should be noted that arbitration is unavailable to the disputing parties if there is no arbitration agreement. Similarly, statutory adjudication is unavailable unavailab le to the disputing parties, if the dispute is not a payment dispute.

 

33 It is possible for parties to a payment dispute to commence statutory adjudication concurrently concurre ntly with arbitration or litigation in the Construction Court on the same dispute. However However this is unlikely to happen in reality as there is little practical benefit in doing so. It is more probable that the dissatisfied party in relation to the adjudicator's decision will thereafter probably proceed to arbitration using the KLRCA Fast Track Track Arbitration Rules or litigation in the Construction Court to finally re-determine the payment dispute. At that point the party may also apply to the Construction Court to set aside the effect of the adjudicatio adjudication n decision. However, if adjudication is not utilized in the first instance, the pivotal consideration between arbitration and litigation in the Construction Court in the case of a domestic construction dispute will then centre on the nature of the dispute because that nature dictates the required case presentation presentation necessary to achieve a just result. In conclusion, The Malaysian alternative dispute resolution landscape has changed by the advent of the Mediation Act (2012), the Arbitration Act (2005, amended 2011), the Construction Industry Payment and Adjudication Act (CIPAA, 2012) and establishment of the Construction Court (2013) by the Malaysian Judiciary. The change is definitely for the better. There are now vibrant ADR and litigation options for disputing parties but it requires wisdom and experience of the ADR Practitioner or legal counsel and client to select the most appropriate one that best serves them.

 

 

34 10.5 THE SOCIETY OF CONSTRUCTION LAW MALAYSIA (SCL Malaysia) The Society of Construction Law Malaysia is an affiliated organisation of the Society of Construction Law based in the UK. In most common law countries such as Canada, Australia, New Zealand, Zealand, Singapore and Hong Kong, there are also similarly affiliated Societies of Construction Law. The objectives of the SCL Malaysia are as follows:1. Promoting, supporting, organizing or participating in Conferences, Seminars, Exhibitions, Scholarships, Courses, Lectures and similar projects for the benefit of the members of the Society and public. 2. Initiating research and studies and working parties, obtaining information on all aspects of construction law and technology and publishing the useful result thereof for the benefit of the members of the Society and public. 3. Publishing or communicating by any desirable and effective means information relating to construction law, law, and all matters relating thereto for the benefit of the members of the Society and public. 4. Establishing relationships, association and liason with other persons and other bodies with similar or related objects objects and exchangin exchanging g information and studies and results concerning all matters relating thereto to further the object of the Society and for the benefit of the members of the Society Society..

 

 

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5. Employing agents or servants (not being members of the Council) as may be necessary to further the object of the Society. 6.Subject to such consents as may be required by law, purchasing, selling, mortgaging, charging or leasing any property which may be required for the purposes and benefit of the Society. 7. Collecting application fees and subscriptions for memberships to the Society. 8. Collecting donations and grants subject to prior approval of the Registrar of Society and other relevant authorities as may be necessary to further the object of the society. 9. Providing, equipping, furnishing, fitting-out with all necessary plant, furniture and equipment andmanaging buildings buildings and properties for the benefit of the members of the Society. 10. Encouraging professionals and other persons from a ll related disciplines and sectors of the construction industry to join the t he Society Any person who has a keen interest in Construction Law can join the SCL Malaysia as an ordinary member and have access to its resources and construction law publications. publication s. Student membership is available but the application must be approved by the Vice-Chancellor of the University or College. (SCL Constitution, article 5.1.3.3)

 

 

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Thank you