Case Note - Adjudication

The Malaysian Institute of Arbitrators·31hb Oktober 2016

Section 15 of the Construction Industry Payment & Adjudication Act 2012 – Setting Aside a Decision of an Adjudicator.

The Court of Appeal in ACFM Engineering & Construction Sdn. Bhd. v. Esstar Vision Sdn. Bhd. (Civil Appeal No.: W – 02(C)(A) – 1165
– 07/2015) was required to review an adjudicator’s decision in a payment dispute between a contractor and a subcontractor in a
construction project.

The Appellant was a contractor that was to supervise the construction of a steel structure in Johor. The Appellant subcontracted the
task of the construction of the structure to the Respondent. The subcontract was subsequently terminated on conflicting grounds
wherein the Respondent alleged non-payment of its fees and the Appellant alleged the unsatisfactory performance of the
Respondent’s services.

The dispute was referred to adjudication under the Construction Industry Payment & Adjudication Act 2012 (“CIPAA”), wherein the
Respondent claimed RM770,791.96 from the Appellant in outstanding progress payments under the subcontract. In response, the
Appellant argued that the terms of payment under the subcontract had not been agreed upon between the parties and the
Respondent was only entitled to RM371,858.32 for the works they had completed thus far.

The adjudicator found for the Respondent and ordered the Appellant to pay RM463,387.20 to the Respondent. The Respondent
applied to enforce the adjudicator’s order in the High Court. The Appellant then filed an application in the High Court to set aside
the adjudicator’s decision. The High Court allowed the Respondent’s application to enforce the adjudicator’s order and dismissed
the Appellant’s setting aside application. The Appellant appealed against both decisions at the Court of Appeal.

The Court of Appeal dismissed the Appellant’s appeals and made a series of important observations on the scope of a challenge
against an adjudicator’s decision under CIPAA.

The Court of Appeal first identified the Appellant’s complaint against the adjudicator’s decision to be the lack of procedural fairness
or natural justice in the adjudicator’s decision-making process (i.e. complaints against the manner in which the adjudicator made his
decision). This was significant because section 15 of CIPAA provides for a limited scope to challenge an adjudicator’s decision, which
was confined to four grounds, one of which was a challenge premised on “a denial of natural justice”.

David Wong JCA then examined Parliament’s intent behind the enactment of CIPAA, which was observed to be “to ensure claims of
the subcontractors are dealt with within a reasonable time frame”. His Lordship also acknowledged the benefit of such a statutory
scheme, which was to ensure that “the unnecessary stoppage of money flow would be avoided.” It was against this backdrop that
the Court remarked that section 15 prescribed “limited circumstances in which an adjudicator’s decision can be set aside”.

The Court then held there to be no evidence that the Appellant’s rights to natural justice had been infringed at the adjudication as
the Appellant was allowed to tender evidence and make the necessary submissions at the proceedings.

The Court also observed that part of the Appellant’s complaints included an invitation to examine the merits of the adjudicator’s
decision, which, it was observed, was beyond the jurisdiction of the courts. In this regard, the Court stated that “it cannot be the
function of the Court to look into or review the merits of the case or to decide the facts of the case…The Court’s function is simply
to look at the manner in which the adjudicator conducted the hearing and whether he had committed an error of law during that
process.”

The Court concluded its judgment by reaffirming the narrow scope for judicial intervention when reviewing an adjudicator’s
decision by stating that “the Court’s intervention is only in very exceptional circumstances which are far and few in between. The
prima facie view of the Court must be to affirm the adjudicator’s decision unless the losing party can show that it had complied with
the thresholds listed in section 15 of CIPPA 2012.”

Written by Gregory Das.