After obtaining an adjudication decision, a sequence known as the ‘CIPAA Trilogy E-S-S’ typically ensues – Enforcement, Setting aside and Stay applications. Typically, the party that receives a favourable adjudication decision will seek to enforce the decision if the losing party refuses to comply with the decision, commonly referred to as ‘the Award’. In response, the losing party frequently seeks to set aside and stay the adjudication decision to evade its responsibilities under the decision.
The pertinent question arises: What happens if the adjudication decision has been enforced – can the adjudication decision still be stayed pursuant to section 16 of the Construction Industry Payment and Adjudication Act (“CIPAA”)?
This question was answered in the recent Federal Court (“FC”) decision of Econpile (M) Sdn Bhd v ASM Development (KL) Sdn Bhd & Another Appeal [2024] 5 CLJ 16.
FACTS OF THE CASE
ASM Development (KL) Sdn Bhd (“ASM”) appointed Econpile (M) Sdn Bhd (“Econpile”) as its main contractor for a construction project. However, disputes arose during the project execution where Econpile claimed that there were issues of under-certification and non-certification of interim certificates and progress claims. On the other hand, ASM contended that Econpile failed to perform the work diligently, resulting in delays in the completion of the project.
1st Adjudication Proceeding
Econpile commenced adjudication proceedings against ASM claiming for the uncertified progress claims nos. 16 to 24 and the alleged under-certification of interim valuation no. 15. Simultaneously, Econpile commenced arbitration proceedings via a Notice of Arbitration which was similarly contested by ASM by another Notice of Arbitration. In the 1st adjudication proceeding, vide an adjudication decision and a supplementary adjudication decision, the adjudicator decided that ASM was to pay Econpile RM59,767,269.32 (“1st Adjudication Decision”).
ASM failed to pay which led to Econpile applying to the High Court to enforce the 1st Adjudication Decision against ASM (“1st Enforcement Application”). ASM responded by filing 2 applications: a setting aside application (“1st Setting Aside Application”) and a stay application pending the conclusion of the arbitration (“1st Stay Application”).
High Court
On 29.11.2019, the High Court (“HC”) allowed Econpile’s 1st Enforcement Application and dismissed ASM’s 1st Setting Aside Application and 1st Stay Application, on the following grounds:
- The fact that ASM has a claim exceeding Econpile’s claim pending in arbitration cannot be considered special circumstances unless it can be shown that there is a real danger that Econpile would not be able to pay ASM, which ASM failed to show;
- There were no clear and unequivocal errors on the part of the adjudicator in arriving at the 1st Adjudication Decision;
- ASM failed to adduce sufficient evidence to persuade the HC to grant an order to stay the 1st Adjudication Decision; and
- ASM failed to provide cogent reasons why a stay is warranted to meet the justice of the case or that the discretion ought to be exercised in ASM’s favour.
Court of Appeal
Aggrieved by the HC’s decision, ASM appealed to the Court of Appeal (“CA”) against all three applications in respect of the 1st Adjudication Decision.
On 26.04.2022, the CA dismissed ASM’s appeal against the 1st Enforcement Application and 1st Setting Aside Application, but allowed ASM’s appeal against the dismissal of the 1st Stay Application.
The CA’s rationale for granting ASM the 1st Stay Application is as follows:
- CIPAA does not expressly prohibit the granting of a stay after an enforcement order has been granted, thus, the court is empowered to grant a stay.
- As long as the threshold under section 16 of the CIPAA is met and supported with cogent evidence that there are special circumstances justifying the granting of a stay, such an application can be considered and granted.
- An adjudication decision does not merge into a judgment if an enforcement application is allowed under section 28 of the CIPAA. An order under section 28 of the CIPAA merely permits the adjudication decision to be enforced as a judgment of the court, but it is not a judgment in itself.
Aggrieved by the CA’s decision to allow ASM’s appeal against the dismissal of the 1st Stay Application, Econpile filed a Motion for Leave to appeal against the CA’s decision.
2nd Adjudication Proceeding
Econpile initiated a further adjudication proceeding in respect of progress claims no. 25 to 27. On 17.09.2019, the adjudicator decided that ASM was to pay Econpile the sum of RM5,959,024.99 (“2nd Adjudication Decision”). However, ASM failed to make payment of the said adjudicated sum to Econpile.
Econpile applied to enforce the 2nd Adjudication Decision (“2nd Enforcement Application”). Similarly, ASM filed applications to set aside the 2nd Adjudication Decision (“2nd Setting Aside Application”) and to stay the 2nd Adjudication Decision (“2nd Stay Application”).
High Court
On 28.10.2020, the HC allowed the 2nd Enforcement Application and dismissed the 2nd Setting Aside Application.
On 04.02.2021, ASM’s 2nd Stay Application was dismissed by the HC.
Court of Appeal
ASM then appealed to the CA against the HC’s decision in allowing the 2nd Enforcement Application, and dismissing the 2nd Setting Aside Application and 2nd Stay Application.
On 28.10.2022, the CA dismissed ASM’s appeal against the 2nd Enforcement Application and the 2nd Setting Aside Application. ASM did not seek leave to appeal against these CA’s decision.
On 25.11.2022, ASM’s appeal against the 2nd Stay Application was dismissed by the CA. In dismissing the appeal, the CA held as follows:
- Econpile is in a healthy financial position and will be able to pay ASM in the event ASM is successful in the arbitration.
- The adjudicator had not made clear errors in his adjudication decision.
Aggrieved by the CA’s decision to dismiss ASM’s 2nd Stay Application, ASM filed a Motion for Leave to appeal against the CA’s decision.
FEDERAL COURT’S DECISION
On 03.01.2023, Econpile was granted leave to appeal against the CA’s decision in the 1st Stay Application. On the other hand, ASM obtained leave to appeal against the CA’s decision in dismissing the 2nd Stay Application.
There were two appeals before the FC arising from the 1st Adjudication Proceeding and 2nd Adjudication Proceeding, both of which essentially relate to the stay applications pursuant to section 16 of the CIPAA.
The questions to be answered by the FC were as follows:
Econpile’s appeal against the CA’s decision in allowing the 1st Stay Application
- Whether an adjudication decision, after having been enforced pursuant to section 28 of the CIPAA as an order of the court, could be stayed pursuant to section 16(1)(b) of the CIPAA;
- Whether the CA in so deciding to allow the stay application pursuant to section 16(1)(b) of the CIPAA had overruled or disagreed, or gone beyond the ratio decidendi of the FC’s decision in View Esteem Sdn Bhd v Bina Puri Holdings Sdn Bhd.
ASM’s appeal against the CA’s decision in dismissing the 2nd Stay Application
- Was the ‘financial capacity to repay test’ the determinative criteria in considering an application for stay pursuant to section 16 of the CIPAA in view of the liberalised interpretation of ‘justice of the case’ by the FC in View Esteem?
- Could a court hearing an application for stay of a subsequent adjudication decision (arising out of the same construction contract, subject matters, issues and parties) refuse a statutory stay?
To address the questions at hand, the FC’s primary focus was to determine whether the existence of a valid enforcement order made pursuant to section 28 of the CIPAA precludes the making of an order pursuant to section 16(1) of the CIPAA.
With respect to the 1st Stay Application, the FC disagreed with the reasoning adopted by the CA. The FC first referred to Hansard to understand and appreciate the intention of the Parliament in enacting the CIPAA. The Court then referred to a plethora of authorities highlighting the underlying intention and objective of the CIPAA, which is to alleviate cashflow issues within the construction industry and to ensure that the parties in construction disputes are paid expeditiously for the work done. The Court further stressed that the courts must favour a construction that promotes the purpose, object or intent of the legislation over a construction which does not.[1]
Therefore, the correct approach under the 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. In other words, the adjudication decision can only be set aside in very rare circumstances.
The FC further notes that the 1st Adjudication Decision and 2nd Adjudication Decision were not set aside and remained in effect. Therefore, in the absence of any error by the adjudicator, the HC had correctly granted an enforcement order. Since both adjudication decisions were not set aside, and in the absence of a specific provision, the court is not statutorily empowered to grant a stay if the adjudication decision is not set aside. Granting a stay in such circumstances would undermine the intent and purpose of CIPAA.
Additionally, the FC underscored the principles governing stay applications under the CIPAA, as elucidated in the judgment of View Esteem Sdn Bhd v Bina Puri Holdings Sdn Bhd[2]. The FC held that, in determining a stay application, the court should adopt a more liberal approach and consider all factors and issues subject to the provisions of the CIPAA. It is not justified to rely on a stringent test as adopted in the HC in the aforementioned case because section 16 of the CIPAA imposes no such limiting requirement. Section 16 should be treated as one of the safeguards against potentially wrongful adjudication decisions which empowers the court to find a suitable middle ground in cases where there have been clear and unequivocal errors.
With the reasons given by the FC, Econpile’s question (i) above is answered in the negative, and question (ii) in the affirmative. The FC held that it was unnecessary to address the questions posed by ASM.
Therefore, the FC allowed Econpile’s appeal against the 1st Stay Application and dismissed ASM’s appeal against the 2nd Stay Application, with a global cost of RM100,000.00 to be paid by ASM to Econpile.
KEY TAKEAWAYS
The FC decision offers several critical insights:
- The FC’s ruling that an adjudication decision cannot be stayed after obtaining an enforcement order places a significant burden on the applicant to file their stay application promptly. Legal practitioners should also advise their clients to act without delay, ensuring that stay applications are decided before or simultaneously with enforcement applications to avoid prejudicing their clients’ position.
- Parties intending to appeal against a court’s decision dismissing a stay application should also consider appealing the court’s decision to grant the enforcement order and in dismissing the setting aside application. This approach is necessary as the courts are unlikely to grant a stay order for an adjudication decision that remains enforceable and in effect.
- While a liberal approach is preferred in considering stay applications, it is imperative that the courts consistently uphold the overarching intent of the CIPAA. This ensures that the legislation’s objective of expeditious payment and alleviating cash flow issues within the construction industry is maintained.
If you have any questions or queries, please contact our Partner, Mr. Kevin Richard Nathan (kevin@nzchambers.com) or Senior Associate, Ms. Elise Tam (elise@nzchambers.com).
Authors:
- Kevin Richard Nathan
- Elise Tam
References:
[1] Tan Kah Fatt & Anor v Tan Ying [2023] 2 CLJ 169, paragraph 49
[2] [2019] 5 CLJ 479