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Procedural Fairness In The CIPAA 2012 Statutory Adjudication






In Ssangyong Engineering & Construction Co Ltd v Oxley Rising Sdn Bhd and Another [2023] MLJU 404, the High Court set aside an adjudication decision due to a denial of natural justice pursuant to Section 15(b) of the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012).


Brief Facts

 

Oxley Rising Sdn Bhd (Defendant) was the employer of a mixed development project in Kuala Lumpur (Project). In 2018, the Defendant awarded a contract to the Plaintiff to execute and complete the construction of the main building and external works for the Project.


The dispute between the parties arose when the Defendant alleged that the works were overwhelmingly delayed with the Plaintiff persistently failed to carry out the works regularly and diligently. According to the Defendant, the Plaintiff did not adhere to the Project architect’s instructions. On the other hand, the Plaintiff claimed that the Defendant did not make payment for work done and assessed only 9 out of 11 applications for an extension of time. The Plaintiff claimed that the COVID-19 pandemic caused interruptions and delay to their work progress.

 

Subsequently, the Defendant terminated the contract and called on the bank guarantee in late 2021. The Plaintiff commenced arbitral proceedings and initiated adjudication proceedings under the CIPAA 2012 against the Defendant. The Defendant also cross claimed against the Plaintiff in the adjudication proceedings.

 

The Plaintiff applied for an extension of time of three days to file its adjudication reply by 28 January 2022. The Defendant opposed this application and reserved its right to seek leave from the adjudicator to respond to the adjudication reply. The adjudicator allowed the Plaintiff’s request for an extension of time to file the adjudication reply.

 

In the Plaintiff’s adjudication reply, the Plaintiff adduced an expert report in relation to the delay in its work progress (Expert Report). However, the Defendant did not make an application to respond to the Plaintiff’s adjudication reply. The Defendant nonetheless sought an oral hearing in relation to the expert report but this was not allowed by the adjudicator. The adjudicator reasoned that cross-examination would not have been beneficial in light of the clear contemporary records. The Adjudicator then delivered his decision in favour of the Plaintiff.


The Defendant’s Setting Aside Application

 

At the High Court, the following three applications were heard together:

 

  1. The Plaintiff’s application to enforce the adjudication decision

  2. The Defendant’s application to set aside the adjudication decision

  3. The Defendant’s application to stay the adjudication decision pending the setting aside application and/or pending final determination of the dispute in arbitration


Denial Of Natural Justice – The Right To A Fair Hearing


The two pillars of natural justice are the right to a fair hearing and the rule against bias. A denial of natural justice would occur if an adjudicator fails to bring the parties’ attention to an issue which they ought to have been given the opportunity to comment on. The denial of natural justice must be a material one to warrant the setting aside of an adjudication decision. This means that the denial of natural justice must have been decisive and/or of considerable potential importance to the outcome of the dispute.

 

The Defendant argued that the adjudication decision should be set aside due to a denial of natural justice under Section 15(b) of the CIPAA 2012. This was because the adjudicator relied on the Plaintiff’s expert report without giving the Defendant the opportunity to make submissions on the expert report. On the other hand, the Plaintiff claimed that the expert report was prepared to answer the Defendant’s claims in the Defendant’s adjudication response, particularly on the delay in the work performance for the Project.

 

Nonetheless, the High Court noted that if the Plaintiff’s contention was true, it would mean that their expert only had 10 days between the adjudication response and the adjudication reply to tender the expert report. The expert report was extensive and voluminous. The court held that it would have been a stretch of imagination to think that such a comprehensive expert report could be prepared within 10 days from the receipt of the adjudication response. Further, the expert report did not make reference to the adjudication response and the Project architect’s witness statement in the adjudication proceedings.

 

Additionally, the adjudicator allowed the Plaintiff’s application for an extension of time of three days to submit the adjudication reply by 28 January 2022. The expert report was dated a mere two days before the deadline to submit the adjudication reply i.e. 26 January 2022. The court agreed with the Defendant’s submission that, had the adjudicator disallowed the Plaintiff’s application for extension of time to submit the adjudication reply, the Plaintiff would not have been able to adduce the expert report in the adjudication reply.

 

The court held that the Adjudicator should have realised that the expert report was adduced not just to rebut the Defendant’s adjudication response. Instead, the expert report was prepared for the entire adjudication proceedings and was planned in advance. Even though the adjudicator must be mindful of the time frame within which he has to deliver the adjudication decision, the rule of procedural fairness demands that he gives an opportunity to the Defendant to comment on the expert report. Moreover, the adjudication decision was delivered 8 days earlier than the scheduled due date.

 

Even if the adjudicator declined to hold a witness hearing, he could have directed parties to file further submissions in relation to the expert report within the time frame for the adjudicator to deliver his decision. Alternatively, the adjudicator could have requested for the parties to agree to an extension of time to deliver the decision by virtue of Section 12(2)(c) of the CIPAA 2012.  

 

As such, the court found that the breach of natural justice was a material one because the adjudicator relied on expert report without giving the Defendant a chance to comment on the expert report and subsequently dismissed the Defendant’s cross claim. The Defendant’s setting aside application was allowed, while the Plaintiff’s enforcement application was dismissed. The stay application was subsequently withdrawn by the Defendant.


Commentary


The objective of the CIPAA 2012 is to provide a speedy process to resolve payment disputes between parties in construction contracts. It is generally understood that adjudication proceedings under the CIPAA 2012 take about 100 working days to be concluded, from the commencement of the claim up to the delivery of the adjudication decision. Adjudicators have a short timeline to consider and determine all the issues and voluminous documents submitted to them.

 

Although statutory adjudications are arguably based on a “pay now, argue later” method, this case highlights the sanctity of the rules of natural justice, particularly the right to a fair hearing in statutory adjudications. All parties should be given the opportunity to be heard and to present their case. In particular, adjudicators should bear in mind that parties ought to be given the chance to submit further arguments and evidence especially where the issue in question would affect the outcome of the dispute. Adjudicators should also note that the timeline to deliver the adjudication decision can be enlarged by agreement of the parties, where necessary.

 

In concluding, justice must not only be done but it must also be seen to be done. Adjudicators are required to strike a balance between upholding procedural fairness between parties and providing speedy justice to unpaid parties. A failure to uphold procedural fairness could cause an adjudication decision to be set aside under Section 15(b) of the CIPAA 2012.



23 February 2024

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