31^st January 2019

Issues

An Adjudicator has the powers to conduct any hearing and limiting the hearing time, if the Adjudicator so wishes. This power is encapsulated in Section 25 (g) of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”).

When and how should this power be exercised? And if the Adjudicator declines to exercise such powers, will it tantamount to a breach of natural justice, rendering the Adjudication Decision liable to be set aside under Section 15 of CIPAA?

These issues arose in the recently reported case of Guangxi Dev & Cap Sdn Bhd v Sycal Bhd & Anor Appeal [2019] 1 CLJ 592, which was decided by the Court of Appeal on 18.09.2018.

Brief Facts

The brief facts of the case, as reported, are as follows:-

(a) The Appellant appointed the Respondent as the Design and Build Contractor as well as the Design Consultant for a project (“Project”).

(b) Thereafter, the parties had on 30.01.2013 executed a formal contract based on the PAM Standard Form of Contract 2006. The contract sum was RM78,199,244.07.

(c) Disputes arose between the parties and the Appellant commenced arbitration proceedings in relation to the contract works vide its notice to arbitrate.

(d) On the other hand, the Respondent initiated 2 adjudication proceedings against the Appellant under CIPAA.

(e) The first Adjudication Decision determined, inter alia, that the Appellant is to pay the Respondent the sum of RM9,514,017 (“1^st Adjudication Decision”) while the second Adjudication Decision determined, inter alia, that the Appellant is to pay the Respondent the sum of RM5,760,578.66 (“2^nd Adjudication Decision”).

(f) The Respondent then applied for enforcement of the Adjudication Decisions in the High Court. The Appellant, at the same time, filed two applications to set aside the said Adjudication Decisions under s. 15 CIPAA 2012 in the High Court.

(g) The Appellant’s setting aside applications were dismissed by the High Court and the Respondent’s enforcement applications were allowed. The Appellant thus filed the present appeal against the dismissal of the setting aside applications by the High Court.

(h) In essence, the complaint of the Appellant was that the Adjudicator, in rejecting the appellant’s application to call its three expert witnesses for oral hearing, had deprived the Appellant of an opportunity to present a complete defence against the Respondent’s claims, which was necessary for a just decision on the facts of the case.

(i) The issue in the Appeal was therefore confined to whether there was a denial of natural justice in the Adjudication proceedings.

Decision of the High Court

In the High Court, the parties agreed that the Court’s decision in relation to the Appellant’s application to set aside the 1^st Adjudication would also bind the parties in relation to the Appellant’s application to set aside the 2^nd Adjudication. As such, the Adjudication Decision that formed the subject matter of the High Court decision was the 1^st Adjudication Decision.

In relation to this, the Court of Appeal noted that:-

“[15]       In coming to her decision, the learned judge relied on this court’s decision in View Esteem Sdn Bhd v. Bina Puri Holdings Sdn Bhd [2017] 1 CLJ 677 (recently overturned by the Federal Court) and observed that the backdrop to CIPAA 2012 was to facilitate regular and speedy payment through the speedy adjudication process. The learned judge held that there had been no denial of natural justice as the reasons advanced by the appellant had been duly considered and the adjudicator had made findings of fact and law. The learned judge also held that even if there had been denial of natural justice, it was not decisive in that the decision of the adjudicator would not have been different.”

Issues before the Court of Appeal

The issue before the Court of Appeal is captured in the following passage of the decision:-

“[17]       In essence, the complaint of the appellant was that the adjudicator in rejecting the appellant’s application to call its three expert witnesses had deprived the appellant of an opportunity to present a complete defence against the respondent’s claims which was necessary for a just decision on the facts of the case. The issue in the instant appeal is therefore confined to whether there was denial of natural justice in the adjudication proceedings.”

In considering the matter, the Court of Appeal studied the Adjudicator’s basis in rejecting the Appellant’s request to call its three expert witness. The Adjudicator in rejecting the Appellant’s said request, took into consideration of the following:-

(i) The Adjudicator took into account of the time limited under CIPAA for the Adjudicator to deliver the decision (“Limited Time”);

(ii) The Adjudicator considered that the matter had already been referred to Arbitration and therefore no prejudice would be caused as the expert witnesses can be called in the Arbitral proceedings (“Pre-Existing Arbitration”); and

(iii) The Adjudicator considered that notwithstanding the above, the defence of disputing the payment certificates was not raised in the payment response (“Not in Payment Response”).

The above is encapsulated in the following passage of the reported case:-

“[22]       In the event, the adjudicator came to the view that there was no need for the expert witnesses to give evidence for several reasons. Firstly, she took into account the time limited under CIPAA 2012 for the adjudicator to deliver the decision. Secondly, she considered that the matter had already been referred to arbitration and no prejudice would be caused as the said witnesses could be called in the arbitration proceedings. Thirdly, she also considered that notwithstanding the earlier reasons, the defence of disputing the payment certificates was not raised in the payment response and as such cannot be considered.”

Decision of the Court of Appeal

Having considered the submissions of parties, the Court of Appeal allowed the Appeal on the following grounds:-

(A) Limited Time Argument

“[24]       In this respect, we agree that any application for an oral hearing must be considered on its merits. The power to do so can be found in s. 25 CIPAA 2012. A request for an oral hearing cannot be denied purely on the ground that time is limited especially in a case where the application to do so had been made at the earliest opportunity. If all applications for an oral hearing are rejected on the timeline argument, then the power to order oral hearings under s. 25(g) of CIPAA 2012 would be rendered illusory.

[25]         We would also observe that unlike the case of Martego Sdn Bhd v. Arkitek Meor & Chew Sdn Bhd & Another Case [2017] 1 CLJ 101 where the request for an oral hearing was made six days before the dateline to deliver the adjudication decision, the request for an oral hearing in the instant case was made one day after the service of the adjudication reply. So there was ample time to conduct the hearing which hearing can be limited by the adjudicator as the case demands. Instead of conceding to an oral hearing, the adjudicator could also order parties to put in written submissions with documents included as was done in the Martego case…

[28]        Even so, it cannot be gainsaid that speedy relief at the expense of a fair hearing will be counter-productive. Any hearing concluded without a full consideration of a party’s case will not inspire confidence in the adjudication process…”

(B) Pre-Existing Arbitration Argument

“[29] In the premises, it was not a convincing argument that such witnesses could be called in the arbitration proceedings as the appellant would have to pay out in excess of RM10 million without having its arguments fully ventilated and decided upon.”

(C) Not in Payment Response Argument

“[30] In any event, the refusal of the adjudicator to consider the defence, or at least the preliminary report, on the basis that it was not raised in the payment response goes against the Federal Court decision in View Esteem. The law as it stands now is that the adjudicator is obligated to consider all defences raised by a respondent in the adjudication response. If the adjudicator fails to do so, he or she does not properly perform the task which he or she has been appointed to do and can be said to have not acted in accordance with natural justice (see Quartzelec Ltd v. Honeywell Control Systems Ltd [2008] EWHC 3315 (TCC) at para. 31).

[31] Although the law may have been different at the time the adjudication decision was made and the adjudicator and the learned judge were bound by that existing law, it is futile to now support any such decision which goes against the current law. Earlier cases which have been disposed of cannot be resurrected but pending cases will have to be decided based on the current law.”

Effect of Decision

From the reported decision, the Court of Appeal decided that:-

(i) Any application for an oral hearing must be considered on its merits;

(ii) A request for an oral hearing cannot be denied purely on the ground that time is limited, especially in a case where the application to do so had been made at the earliest opportunity;

(iii) Where the request for oral hearing is made without undue delay, there may be “ample time to conduct the hearing” where the same can be limited by the Adjudicator as the case demands;

(iv) Instead of allowing an oral hearing, the Adjudicator may also order parties to submit written submissions with documents;

(v) The fact that there is an existing arbitration and that witnesses can be called in the arbitral proceedings is not a “convincing argument” to reject application for oral hearing;

(vi) Following View Esteem (Federal Court), an Adjudicator who refuses to consider a defence on the basis that it is not in the Payment Response “can be said to have not acted in accordance with natural justice”.

Following the decision, will adjudicating parties be inclined to request for oral evidence to be heard? And if so, Adjudicators ought not dismiss such applications purely on the basis of limited time.

An Adjudicator may also wish to consider ordering parties to provide written submission with documents if the Adjudicator rejects an application for oral hearing. This is especially the case if the application was made without undue delay.

A point to note in this reported decision is that the request for oral evidence to be heard was made “one day after the service of the adjudication reply”.

It remains to be seen whether the delivery of the adjudication decision within the time stipulated in CIPAA will be affected by the Adjudicators’ endeavor to entertain oral hearing / further submissions requested by parties.

It is imperative to note that an adjudication decision that is not made within the period specified time under CIPAA would be void, unless parties agree to extend the deadline.