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Can Adjudication Decisions be Stayed Post-Enforcement?

by MH Law | May 14, 2024 | Legal Updates | Case Spotlight

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Background


[Econpile (M) Sdn Bhd v ASM Development (KL) Sdn Bhd and another appeal [2024] 3 MLJ 157]


ASM Development (KL) Sdn Bhd ("ASM"), the respondent, engaged Econpile (M) Sdn Bhd ("Econpile"), the appellant as its principal contractor to oversee and finish construction tasks specified in a construction agreement. Delays occurred during the project, leading to the project architect issuing a Certificate of Non-Completion and subsequent notification of liquidated damages leading to disputes emerging between the two parties.


In adjudication proceedings initiated by Econpile against ASM, adjudicators ruled in favor of Econpile, determining sums owed by ASM. When ASM failed to pay the adjudicated amount, Econpile filed an application to enforce the adjudication decision pursuant to section 28 of CIPAA in the High Court.


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Order of Appeals


Econpile initiated adjudication proceedings under CIPAA to seek payment for amounts owed based on progress claims and interim certificates that were under-certified. The adjudicator ruled in favor of Econpile, ordering ASM to pay RM59,767,269.32 ("First Adjudication Decision"). ASM failed to comply with this ruling, prompting Econpile to take legal action, including applying for enforcement of the First Adjudication Decision under section 28 of CIPAA. ASM, however, filed applications to contest and halt the decision. Meanwhile, both parties initiated arbitration proceedings.


High Court

The High Court approved Econpile's enforcement application and rejected ASM's attempts to contest and halt the decision. In rejecting the halt application, the Court made several findings: ASM's potential claim exceeding Econpile's in arbitration doesn't qualify as a special circumstance unless ASM can prove a genuine risk that Econpile won't be able to pay, which ASM failed to do; there were no clear errors by the adjudicator in reaching the decision; ASM didn't provide enough evidence or compelling reasons to justify a halt in the interest of justice or to sway the decision in ASM's favor. ASM appealed to the Court of Appeal, which upheld the setting aside of the enforcement orders but allowed the appeal regarding the halt application ("Stay Order"). Econpile then obtained permission to appeal to the Federal Court against the Court of Appeal's decision to grant the Stay Order.


Court of Appeal

The Court of Appeal, in granting the Stay Order, argued that CIPAA doesn't explicitly prevent courts from issuing a stay order post-enforcement order. It clarified that if the requirements under section 16 of CIPAA are met and supported by strong evidence demonstrating special circumstances justifying the stay, such an application can be approved. Moreover, the Court noted that an enforcement order under section 28 of CIPAA merely facilitates the enforcement of the adjudication decision as a court judgment but doesn't constitute a judgment itself.


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Federal Court

In the appeal related to the First Adjudication Proceedings, the issues for the Court's consideration were:


  1. Whether a decision made in adjudication, which has been enforced as a court order under section 28 of CIPAA, can be halted under section 16(1)(b) of CIPAA.

  2. Whether the Court of Appeal, in granting the stay application under section 16(1)(b) of CIPAA, has contradicted or exceeded the legal precedent set by the Federal Court's decision in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 (“View Esteem”).


The Federal Court primarily focused on determining whether the presence of a valid enforcement order issued under section 28 of CIPAA prevents the issuance of a stay order under section 16(1) of CIPAA when addressing the appeals.


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Grounds for Judgement


1. Intention of CIPAA

The Federal Court disagreed with the Court of Appeal's rationale for granting the Stay Order in connection with the First Adjudication Proceedings. Instead, it delved into the Hansard records to grasp the Parliament's intentions behind enacting CIPAA. The Court noted that prior to CIPAA, parties in payment disputes were limited to either court or arbitration, which often proved costly and time-consuming, thereby inhibiting dispute resolution. CIPAA, however, offers a swifter and more cost-effective alternative. It was revealed in the Hansard that the Cabinet had endorsed the need for a dedicated act to address payment issues in the construction industry and aid in dispute resolution.


The Federal Court then turned to statutory interpretation principles, highlighting Section 17A of the Interpretation Acts 1948 and 1967, which prioritizes constructions aligning with legislative purposes. It cited precedent cases, notably ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd & Another Appeal [2016] 1 LNS 1522, where the underlying ethos of CIPAA was elucidated. The aim, as observed by the court, was to create a fair environment in the construction sector by introducing a swift and economical adjudication system for interim claims by subcontractors, crucial for their sustenance.


Furthermore, the Federal Court referenced CIPAA's long title, emphasizing its mandate to ensure regular and prompt payments, expedite dispute resolution through adjudication, offer remedies for payment recovery in the construction industry, and address related matters. This was echoed in the Federal Court's ruling in Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd and another appeal [2020] 6 MLJ 224, stressing CIPAA's establishment as a faster and more economical dispute resolution mechanism through adjudication, with the court's primary role being to uphold adjudicators' decisions without revisiting factual or legal issues already addressed.



2. Lack of Statutory Provisions

The Federal Court clarified that there was no ambiguity in the provisions concerning setting aside and enforcement in CIPAA. It stated that there's no provision for halting an adjudication decision once an enforcement order is issued. The Court, based on statutory interpretation principles, concluded that without a specific provision, it lacks the authority to grant a stay if the adjudication decision remains unaltered, as it would contradict CIPAA's purpose.


Regarding a previous decision where a stay was granted without setting aside the adjudication decision, the Court found it exceeded jurisdiction. It emphasized that adjudication decisions should be honored unless set aside under CIPAA, as deviating from this would undermine CIPAA's goals. Consequently, the Court answered the appeal's questions accordingly.



3. Valid Enforcement Orders

The Federal Court referenced Section 16 of CIPAA, which outlines the specific conditions for requesting a stay of an adjudication decision. It emphasized that such decisions are typically upheld unless there are very rare circumstances warranting their nullification, in order to maintain the provisional resolution of payment disputes in construction contracts.


The Court affirmed that the adjudication decisions in question were not overturned and remained valid, thus the High Court's issuance of enforcement orders was appropriate.

Regarding enforcement applications, the Federal Court cited the case of Inai Kiara Sdn Bhd v Puteri Nusantara Sdn Bhd [2019] 2 MLJ 362, where it was established that applicants seeking to enforce adjudication decisions need not prove the absence of grounds for overturning the decision. They merely need to demonstrate that the decision favored them and that the respondent failed to pay the adjudicated sum by the specified date.


In interpreting CIPAA, the Federal Court stressed the importance of considering the legislation's intent and purpose. It underscored that, generally, adjudicators' decisions should be upheld unless there are jurisdictional issues or breaches of natural justice. Therefore, such decisions are binding unless a court intervenes, and the only valid defense against enforceability lies in demonstrating violations of natural justice or jurisdictional deficiencies, leading to the decision's nullification.



4. View Esteem

After reviewing the purpose and goals of CIPAA, the Federal Court also emphasized the principles guiding requests for stays, as previously outlined in the View Esteem case. Unlike the strict stance taken by the High Court and Court of Appeal in that instance, the Court in View Esteem didn't favor a rigid approach to granting stays. It observed that the High Court believed stays should only occur under exceptional circumstances, while the Court of Appeal required overwhelming evidence that the contractor couldn't fulfill its contractual and financial obligations to the employer.


The Federal Court in View Esteem argued that such a rigorous standard isn't warranted under CIPAA since section 16 of CIPAA doesn't impose such a requirement. Instead, it preferred a more flexible interpretation of section 16 to allow courts to grant stays in cases of clear errors or to ensure fairness in individual situations. that, generally, adjudicators' decisions should be upheld unless there are jurisdictional issues or breaches of natural justice. Therefore, such decisions are binding unless a court intervenes, and the only valid defense against enforceability lies in demonstrating violations of natural justice or jurisdictional deficiencies, leading to the decision's nullification.


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Key Takeaways

This ruling settles the question of whether a decision made through adjudication can be put on hold after enforcement orders have been issued. Moreover, it seems the Court has broadened the restriction on issuing stay orders to cover any adjudication decision that hasn't been overturned, regardless of whether it's been enforced. While emphasizing the importance of adhering to the more flexible approach suggested in View Esteem for granting stay applications, the Court also acknowledges the fundamental aim of CIPAA, which is to tackle cashflow problems in the construction sector. By taking this stance, the Court is reiterating the significance of honoring adjudication decisions to maintain the integrity and purpose of CIPAA.





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