Denial of Natural Justice in CIPAA 2012: Insights from Ssangyong Engineering & Construction Co Ltd v Oxley Rising Sdn Bhd and Another Case 

Denial of Natural Justice in CIPAA 2012: Insights from Ssangyong Engineering & Construction Co Ltd v Oxley Rising Sdn Bhd and Another Case 

Introduction

The Malaysian Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) is a pivotal piece of legislation that was enacted to address payment disputes within the construction industry in a prompt and efficient manner.

As with an adjudication process, the party who succeeds in obtaining an adjudication decision (AD) in their favour typically seeks to enforce the decision, while the opposing party often challenges its validity, seeking to have the AD set aside.

Section 15 of CIPAA outlines the grounds upon which an AD may be set aside. One such ground is the denial of natural justice, as stipulated under Section 15(b) of CIPAA.

This article examines the case of Ssangyong Engineering & Construction Co Ltd v Oxley Rising Sdn Bhd and Another Case[1], in which the AD was set aside on the basis of a denial of natural justice.

Facts of the Case

Oxley Rising Sdn Bhd (Oxley), as the Employer, appointed Ssangyong Engineering & Construction Co Ltd (SSY) as their Contractor for the construction and completion of Main Building and External Works for a mixed development project located in Kuala Lumpur, with a contract sum of RM1,293,222,521.65.

Disputes arose between the parties during the course of the project. Oxley claimed that SSY had caused delays in the completion of the works due to their failure to perform diligently. Conversely, SSY contended that Oxley had failed to make timely payments for completed works and had under-evaluated SSY’s applications for extension of time (EOT). SSY also relied on the Covid-19 pandemic as a reason for disruptions to the project’s progress. In response, Oxley issued a notice demanding remedy of the breaches and ultimately terminated the contract, invoking the bank guarantee.

While arbitration proceedings were initiated, SSY also sought adjudication under CIPAA 2012 to recover the value of the works completed. The Adjudicator ruled in favour of SSY.

Dissatisfied with the AD, Oxley applied to have the decision set aside under Sections 15(b), (c), and (d) of CIPAA 2012. The High Court, however, found that there had been a denial of natural justice under Section 15(b), and consequently, did not address the additional grounds raised by Oxley.

Analysis of the Case

In this case, the High Court ruled that there was a denial of natural justice when the Adjudicator relied on an Expert Report submitted by SSY without providing Oxley the opportunity to make submissions on the report. The Court’s rationale centers on the procedural fairness of the adjudication proceeding and the significant reliance placed on the Expert Report in the AD.

The Importance of the Expert Report

The Expert Report played a central role in the Adjudicator’s decision. It was adduced by SSY as part of their Adjudication Reply, following a request for an EOT to submit the reply due to the voluminous nature of Oxley’s Adjudication Response. Despite Oxley’s objections, the Adjudicator granted SSY the requested extension, allowing them to submit the Adjudication Reply on 28.01.2022.

The Court’s observations provide key insights into the issues at hand:

  • Preparation and Intent of the Expert Report

The Court noted that the Expert Report was not a mere defensive response to Oxley’s Adjudication Response, as SSY had alleged, but rather a planned and comprehensive document prepared for the entire adjudication proceeding. The level of detail in the Expert Report indicated that it was meant to influence the overall adjudication outcome, rather than solely addressing specific points raised by Oxley in the Adjudication Response. Notably, the Expert Report made no reference to either the Adjudication Response or the Respondent’s Witness Statement. Despite this, the Adjudicator accepted the Expert Report in its entirety without affording Oxley the chance to further comment on its contents before making the final decision.

  • Reliance on the Expert Report in Ruling on Oxley’s counterclaim or cross claims

The Expert Report had significant influence on the Adjudicator’s analysis, particularly concerning issues such as Movement Control Order (MCO) and EOT, and the validity of Oxley’s termination of the contract. The findings within the Expert Report led the Adjudicator to conclude that Oxley’s termination of the contract was unlawful, which, in turn, rendered Oxley’s counterclaim and cross claim invalid. This demonstrates the pivotal role the Expert Report played in shaping the outcome of the adjudication.

  • Potential for a Different Outcome with Full Procedural Fairness

The Court concurred with Oxley’s assertion that had Oxley been given the opportunity to respond to the Expert Report, the Adjudicator might have arrived at a different conclusion. The failure to provide Oxley with an opportunity to review, comment on, or challenge the Expert Report before the Adjudicator made his decision was seen as a material breach of natural justice.

  • Role and Duty of the Adjudicator

The Adjudicator plays a crucial role in ensuring that the adjudication process is conducted fairly and that both parties are afforded the right to be heard (audi alteram partem). In this case, the Adjudicator should have provided Oxley with the opportunity to comment on the Expert Report, even though there was a need to deliver the AD within the stipulated timeframe under CIPAA. While Oxley reserved its right to seek leave to file a further response to the adjudication reply but did not seek leave from the Adjudicator to do so eventually, it remains the responsibility of the Adjudicator to bring to the attention of the parties any points or issues that are of considerable importance to the outcome of the dispute. When an issue holds significant potential to influence the resolution of the dispute, the Adjudicator must ensure that both parties are given a fair opportunity to address it before the final decision is made. This is a fundamental aspect of procedural fairness and natural justice.

Conclusion

In conclusion, this case highlights the critical importance of procedural fairness in adjudication proceedings and the imperative of adhering to natural justice principles. The reliance on expert evidence without allowing both parties an equal opportunity to respond undermines the integrity of the decision-making process. The ruling in this case further underscores the fundamental right to be heard, which is a core aspect of fair adjudication proceeding.

Should the principle of natural justice be found to be breached, the AD could be set aside, as demonstrated in this case.

For further advice on navigating adjudication under CIPAA, please contact Mr. Kevin Richard Nathan (kevin@nzchambers.com), Partner in the Projects & Infrastructure Department.

Authors:

  1. Elise Tam
  2. Wan Tasnima

References:
[1] [2023] MLJU 404

Published Date: 13 January 2025