CIPAA Adjudication Decision can only be set aside if the Breach of Natural Justice is Material and Decisive

A CIPAA Adjudication Decision is binding on the parties unless it is set aside pursuant to Section 13 of Construction Industry Payment and Adjudication Act 2012 (CIPAA),

Under Section 15 of CIPAA, a CIPAA 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 Court held that not all allegation of breach / denial of natural natural justice can warrant the setting aside of a CIPAA Adjudication Decision. The alleged breach / denial of natural justice must be material and decisive to the Adjudication Decision and not merely peripheral in nature. 

The Court’s decision is in line with the rationale of CIPAA and illustrated the judicial inclination in not setting aside an Adjudication Decision. The Court will only exercise its discretion sparsely in limited situation where the breach truly deserves the Court’s intervention.

Background Facts

The background facts of this case is as follows:-

1. ACFM Engineering & Construction Sdn Bhd (“Plaintiff“) was engaged by Lotte Engineering & Construction (Malaysia) Sdn Bhd as the main contractor to undertake and supervise the project known as “MSR-R1 Project at Lotte E&C (Malaysia) Sdn Bhd, Plot 8, Jalan Nibong 2, Mukim Sungai Tiram Langsat, 81700 Pasir Gudang, Johor“.
2. The Plaintiff subsequently appointed Esstar Vision Sdn Bhd (“Defendant“) to take over as the subcontractor for the work known as “the fabrication and erection of steel structure for coagulating area and other auxiliary parts of the steel structure” for the contract sum of RM843,422.00.
3. The Sub-contract was eventually terminated. The Defendant alleged that the Plaintiff did not pay for the work done.
4. In response, the Defendant alleged that the Plaintiff’s work was not satisfactory.
5. Subsequently, the Defendant initiated a CIPAA claim against the Plaintiff.
6. The Adjudicator found in favour of the Defendant and awarded a sum of RM463,387.20 to the Defendant.
7. Dissatisfied with the CIPAA Adjudication Decision, the Plaintiff sought to set aside the CIPAA Adjudication Decision under Section 15 of CIPAA, and alleged that there has been a breach of natural justice.
8. The Plaintiff 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.”

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

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 Plaintiff’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.