12^th April 2019

Issues

Once a decision is rendered in favour of the claimant following adjudication pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”), the successful claimant can start taking steps to enforce the same. Corollary to the same, the respondent can also take steps to set aside or stay an adverse adjudication decision.

When the claimant files an enforcement application, the respondent will usually file corresponding application(s) to have the adjudication decision set aside or stayed and often times, these applications will be heard together with the enforcement application.

However, can a respondent resist the setting aside application without filing its own application to set aside the adverse adjudication decision? What would be the applicable test to resist the enforcement application in such circumstances?

This issue arose in the Court of Appeal case of Inai Kiara Sdn Bhd v Puteri Nusantara Sdn Bhd [2019] 2 CLJ 229.

Brief Facts

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

(a)     The Respondent appointed and the Appellant accepted its appointment as the subcontractor for a construction project, vide a Letter of Acceptance dated 13.11.2014;

(b)     The Appellant’s case is that it carried out and completed the works on 14.04.2015 and had demobilized and left the site on 24.04.2015 pursuant to the Respondent’s instructions;

(c)     The Respondent thought otherwise and had on 15.07.2015 determined the appointment of the Appellant as subcontractor for the project;

(d)     In the course of the subcontract works, the Appellant submitted to the Respondent a total of 8 progress claims between 24.12.2014 to 14.04.2015. Of the 8, progress claims no.1 to 3 were partially honoured while progress claims no. 6 to 8 were unpaid;

(e)     Following the above, Appellant initiated adjudication pursuant to CIPAA 2012 and had obtained a decision in its favour, inter alia, for payment of the sum of RM694,451.36 (“Decision”);

(f)      The Respondent did not make payment pursuant to the Decision and the Appellant filed an application to enforce the Decision pursuant to section 28 of CIPAA 2012 in the Shah Alam High Court (“Enforcement Application”);

(g)     The Respondent did not file any application to set aside the Decision pursuant to section 15 of CIPAA 2012;

(h)     Instead, the Respondent sued the Appellant before the Kuala Lumpur High Court for non-completion of the subcontract works (“KL Suit”);

(h)     Premised on the KL suit, the Respondent applied to stay the Decision pursuant to section 16 of CIPAA 2012.

Decision of the High Court in the Enforcement Application

The main thrust of the Respondent’s submissions in resisting the Enforcement Application is that the Adjudicator had acted beyond his jurisdiction. The Respondent also contended that there “were “clear and unequivocal errors” committed by the adjudicator in which case the application under s. 28 must be refused”.

In response, the Appellant submitted that, “since the respondent did not apply to set aside the adjudication decision, the respondent must be taken to have accepted that decision but has “willingly refused to comply”. And, pursuant to s. 13 CIPAA 2012, the decision is binding on the parties”.

The Learned High Court Judge disagreed with the Appellant and found that:-

“…the respondent’s contentions “to have more weight”. Relying on s. 15(d) of CIPAA 2012, the learned judge held that it was for the court to intervene when the adjudicator has acted beyond his jurisdiction. It was the learned judge’s findings that the adjudicator had acted in excess of his jurisdiction”.

Decision of the Court of Appeal

The issue before the Court of Appeal is as follow:-

“…the issue before us is whether it is open to a party such as the respondent who is resisting or opposing an application for enforcement under s. 28, to raise any of the grounds under s. 15 without actually filing an application under s.15 itself.”

Having considered the submissions of parties, the Court of Appeal answered the above in the negative:-

“[22]       In our view, the answer is clearly in the negative. It is not open to the respondent to invoke any of the grounds set out in s. 15(a) to (d) in opposition to an application under s. 28 without at the same time, filing an application under s. 15 itself to set aside the adjudication decision on any of those grounds. Unless and until an application under s. 15 has been initiated by the respondent, and an order has been granted setting aside the adjducation decision, the adjudication decision ought to stand unopposed on the grounds found in s.15 (a) to (d)…”

The Court of Appeal also took the opportunity to state the test for application to enforce an adjudication decision pursuant to section 28 of CIPAA 2012:-

“… All that the application needs to satisfy the High Court that there is an adjudication decision that has been rendered in the applicant’s favour, that there has been non-payment of the adjudicated sum by the date specified in the adjudication decision, and that there is no prohibition to the grant of the order that is sought…

…By this, we mean that the adjudication decision has not been set aside or stayed, that there is no written settlement of the subject matter between the parties, or that there is no final decision rendered on the payment claim, whether made in arbitration or by a court of law. Once these matters are established as matters of fact, the order to enforce ought to be granted.”

Applying the aforesaid test to the facts of the case, the Court of Appeal found that:-

“…From the facts of this appeal, the appellant has amply satisfied the conditions that we have outlined. The learned judge was plainly wrong in dismissing an application in which case, the decision must be set aside and the appeal, allowed.”

The Court of Appeal also took the opportunity to stress upon the importance of filing an application to set aside the adjudication decision should a party wishes to challenge the effect of an adjudication decision:-

“[41]       In our view, from a proper reading of ss. 13, 15, 16 and 28, the binding effect of the adjudication decision is automatic; hence the need for any dissatisfied or aggrieved party to first apply to set aside the adjudication decision…

[43]        We must point out that even in an application for stay of an adjudication decision under s. 16, an application under s. 15 to set aside the adjudication decision must still first be filed – see s. 16(1)(a). Unless and until there is a positive challenge to the adjudication decision on any or all of the grounds statutorily provided under s. 15, the respondent, at best, can only oppose the appellant’s application for enforcement. Even then, the basis for opposing the enforcement application ought to be confined to the matters that we had averted to earlier. This construction is necessary so that the adjudication scheme may work effectively within the object and purpose of the Act.”

Effect of Decision

In the end, the Court of Appeal concluded that:-

“[56]       It is our opinion that a dismissal of the appellant’s application for enforcement on the ground of excess of jurisdiction without at the same time, setting aside that adjudication decision would not only give a construction and interpretation which will defeat the purpose of CIPAA 2012, but would leave the parties and the court in an incongruous and untenable position. That is unpalatable. On the one hand, a refusal to grant an enforcement order because it is purportedly an improperly procured adjudication decision; and on the other hand, the binding effect of that adjudication decision.”

The conclusion makes perfect sense considering that, even if the adjudication decision cannot be enforced as a judgment of the High Court pursuant to section 28 of CIPAA 2012, it can still be enforced pursuant to sections 29 or 30 of CIPAA 2012, unless it is set aside or stayed pursuant to sections 15 or 16 of CIPAA 2012 respectively:-

(a)     Section 29 of CIPAA 2012 : the contractor / claimant can suspend or reduce the rate of progress of performance of works; or

(b)     Section 30 of CIPAA 2012 : the contractor / claimant can claim for direct payment from the respondent / employer’s Principal.

Following the decision, it should be noted that:-

(a) If the respondent wishes to challenge the effect of an adverse adjudication decision, the respondent ought to take positive steps to have the decision set aside;

(b)     In the absence of setting aside application, the binding effect of the adjudication decision is automatic;

(c)     All the successful claimant need to show to have the adjudication enforced as a judgment of the High Court pursuant to section 28 of CIPAA 2012, are as follows:-

(i)      there is an adjudication that had been rendered in its favour;

(ii)     there has been non-payment of the adjudicated sum; and

(iii)    there is no prohibition to the enforcement of the adjudication decision as a judgment of High Court.

(d)     The prohibitions mentioned above, are:-

(i)      the decision has been set aside or stayed; or

(ii)     there is a written settlement of the subject matter between the parties; or

(iii)    there is a final decision rendered on the payment claim, whether made in arbitration or by a court of law.

(e)     In other words, in the absence of the above prohibitions, an adjudication decision in favour of the claimant that has not been satisfied by way of payment is automatically enforceable pursuant to section 28 of CIPAA 2012.

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