Under Section 16 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), one may apply to the High Court to stay an adjudication decision if an application to set aside the adjudication decision has been made, or if the subject matter of the adjudication decision is pending in arbitration or before the Courts.
The Federal Court case of Econpile (M) Sdn Bhd v ASM Development (KL) Sdn Bhd and another appeal [2024] MLJU 697 has shed some light as to the factors that the Court should take into account when deciding on a stay of an adjudication decision.
Brief background facts
- Econpile (M) Sdn Bhd (“Econpile”) was appointed as the main contractor by ASM Development (KL) Sdn Bhd (“ASM”) for a mixed development project in Kuala Lumpur.
- ASM claimed that Econpile did not perform its work diligently resulting in delays to the project. As such, ASM did not certify certain progress claims and one of the progress claims were not certified in full.
- Econpile commenced adjudication for the uncertified and under-certified progress claims. Simultaneously, Econpile commenced arbitration against ASM for the same.
- Econpile received an adjudication decision in its favour.
- After an unsuccessful attempt to wind-up ASM using the adjudication decision, Econpile proceeded to enforce the adjudication decision at the High Court.
- ASM responded by filing two applications: one to stay the adjudication decision, and another to set aside the adjudication decision.
At the High Court
- The High Court allowed Econpile’s application to enforce the adjudication decision.
- ASM’s applications to stay and set aside the adjudication decision were dismissed.
At the Court of Appeal
- ASM appealed against the High Court’s decision.
- The Court of Appeal dismissed ASM’s appeal in relation to the High Court’s decision on the enforcement and setting aside of the adjudication decision.
- However, the Court of Appeal allowed ASM’s appeal in respect of the stay application.
- Econpile, being dissatisfied with the Court of Appeal’s decision, appealed against it to the Federal Court.
At the Federal Court
- The Federal Court disagreed with the Court of Appeal’s decision to allow a stay of the adjudication decision, after the enforcement order was granted.
- The Federal Court began by diving into the intention of CIPAA, which was to address, among other things, cash flow issues in the construction industry and to assist an unpaid party in getting paid expeditiously.
- In this connection, the Federal Court first found that there is a very high threshold to set aside an adjudication decision given the intention of CIPAA.
- Then, the Court held that since there is no provision under CIPAA to stay the enforcement of an adjudication decision after an application to enforce an adjudication decision is granted, then the Courts are not allowed under statute to grant a stay if the adjudication decision is not set aside. Otherwise, this will be acting against the intention of CIPAA.
- The Federal Court found that the Court of Appeal had acted in excess of jurisdiction in granting the stay after the enforcement order was given, given that the adjudication decision was not set aside.
- The correct approach under CIPAA is to uphold an adjudicator’s decision unless there are issues relating to jurisdiction or there has been a serious breach of natural justice. The adjudicators’ decisions are binding on the parties until reversed by a court. Thus, the only defence to enforceability is if the findings offended the principle of natural justice or if the adjudicator lacked jurisdiction and, on that basis, the decision is set aside.
Key Takeaways
The main issue in the Federal Court appeal was whether the existence of an enforcement order (for the adjudication decision) prevents a stay of the adjudication decision under section 16 of CIPAA.
The Federal Court’s decision confirms that once an enforcement order is granted, there cannot be a stay of the adjudication decision. The emphasis on the intention of the enactment of CIPAA is apt given that the unpaid party should not be burdened with a stay after having its application to enforce the adjudication decision allowed. To hold otherwise would have defeated the intention and purpose of CIPAA.
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This article was written by Sean Ferdinand Ng (Senior Associate) from Donovan & Ho’s dispute resolution practice.
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