CASE UPDATE: Setting Aside of Adjudication Decision only if the Breach is Material and Decisive

ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd & Another Case [2015] 1 LNS 756

When an Adjudication Decision is delivered, it is binding on the parties unless it is set aside pursuant to Section 15 of Construction Industry Payment and Adjudication Act 2012 (CIPAA).

Under Section 15 of CIPAA, an Adjudication Decision can be set aside if:

(a) the adjudication decision was improperly procured through fraud or bribery;

(b) there has been a denial of natural justice;

(c) the adjudicator has not acted independently or impartially; or

(d) the adjudicator has acted in excess of his jurisdiction.

In this case, the High Court examined the rationale behind CIPAA and concluded that CIPAA is meant to resolve the construction payment dispute swiftly and expeditiously by way of an Adjudication Decision of temporal effect.

As such, in an application to set aside an Adjudication Decision pursuant to Section 15 on the ground that there has been a denial of natural justice, the alleged breach / denial of natural justice must be sufficiently material and decisive to the Adjudication Decision and not merely peripheral in nature. 

The High Court’s decision had illustrated the judicial inclination in not setting aside an Adjudication Decision and the Court will only exercise its discretion sparsely in limited situation whereby the breach truly warrant the Court’s intervention.

Background Facts

In this case, the Main Contractor was engaged to undertake and supervise a project in Johor.

In turn, the Main Contractor had appointed the Subcontractor for the fabrication and erection of steel structure.

The Sub-contract was eventually terminated. The Subcontractor alleged that the Main Contractor did not pay for the work done. In response, the Main Contractor alleged that the Subcontractor’s work was not satisfactory.

Subsequently, the Subcontractor initiated a CIPAA claim against the Main Contractor. The Adjudicator found in favour of the Subcontractor and awarded a sum of RM463,387.20 to the Subcontractor.

The Main Contractor then sought to set aside the CIPAA Adjudication Decision under Section 15 of CIPAA, alleging that there has been a breach of natural justice. The Main Contractor contended that the Adjudicator had premised his decision based ‘on his own assessment’ and has gone “on a frolic of his own by stating that he accepts some figures but not all.

High Court Decision

At the outset, the High Court explains that when dealing with an application to set aside the CIPAA Adjudication Decision under Section 15, the Court is not sitting in exercise of its appellate jurisdiction. Therefore, the Court’s function is not to look into or review the merits of the CIPAA Adjudication Decision but to see whether the Adjudicator had accorded ‘procedural fairness’ to the parties.

The High Court proceeded to examine the rationale behind the enactment of CIPAA and concluded that the key twin features of CIPAA which is speed or swiftness and provisional binding nature of the adjudication decision must always be in the forefront of any consideration in an application to set aside the CIPAA Adjudication Decision under Section 15.

Given the rationale, the whole purpose for statutory adjudication should not be “thwarted by an overly sensitive concern for procedural niceties”.

The High Court found that the Main Contractor’s complaint of alleged breach of natural justice pertains to the issue of adequacy of proof. The High Court dismissed the Main Contractor’s argument and held that the perception of adequacy of proof is not a test in considering whether there has been a breach of natural justice, which relates to a complaint that a party has not been treated fairly or the Adjudicator has not acted impartially.

Most importantly, the High Court endorsed the principle laid down in the English case of Balfour Beatty Construction Ltd v Mayor & Burgess London Borough of Lambeth Balfour [2002] Adj LR 04/12 and held that not any breach or denial which will forestall the enforceability of the adjudication decision or be a ground for setting aside that decision. Only material breach which is “either decisive or of considerable potential importance to the outcome and not peripheral or irrelevant” will entitle the parties to set aside the Adjudication Decision.

ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd and another appeal [2016] MLJU 1776

Court of Appeal’s Decision

The Court of Appeal stated that CIPAA is a piece of legislation to resolve construction payment dispute in a speedy and economical manner. It is to overcome the situation whereby the Main Contractors have taken advantage of the intricacies of the judicial system by withholding payment without valid reasons.

The Court of Appeal explained that in the application of setting aside under Section 15 of CIPAA, the Court’s function is not to look into or review the merits of the CIPAA Adjudication Decision but to see whether the Adjudicator had accorded ‘procedural fairness’ to the parties.

Premised on the above, the Court of Appeal affirmed the decision of High Court.

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