It is common belief that adjudications unduly favour the unpaid party and that attempts to set aside the decision are ordinarily unsuccessful. This is due to the courts adopting a pro-adjudication policy, whereby adjudication decisions can only be set aside for failure of process and not by reason of the merits of the decision itself. In other words, unless the adjudicator makes a mistake in her/his handling of the process of adjudication, or the subject matter of the adjudication itself falls outside the ambit of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”), it is unlikely for an adjudication decision to be set aside.

Perbadanan Perwira Harta Malaysia v Kuntum Melor Sdn Bhd and another case [2021] MLJU 1593 is one of those rare instances when the decision is set aside. In doing so, the learned Aliza Sulaiman JC delves into multiple grounds, some of which raise interesting issues for discussion.

Brief facts

Perbadanan Perwira Harta Malaysia (“PPHM”) is owned by the Lembaga Tabung Angkatan Tentera. On 22.7.2014, PPHM awarded the contract for “The Proposed Development of The Pengkalen Udara Sendayan – Negeri Sembilan – (Package 6B – Building and External Works)” to Kuntum Melor Sdn Bhd (“Kuntum Melor”). The contract period was 18 months from date of site possession on 6.8.2014. The PWD Form 203A was adopted.

Works fell into delay. Kuntum Melor issued notices to the effect that it intends to claim for loss and expense arising from the late delivery of site possession. Apparently only 3 out of 64 sites were handed over to Kuntum Melor. There were multiple legal steps taken by Kuntum Melor including terminating the contract, thereafter, withdrawing its termination, followed by issuing a notice of arbitration, and thereafter withdrawing its notice of arbitration. Finally on 8.10.2019, Kuntum Melor resorted to issuing a Payment Claim under CIPAA 2012.

The adjudicator decided in favour of Kuntum Melor and awarded Kuntum Melor RM918,013.27 in addition to interest and costs for idling.

Setting aside, stay and enforcement applications

As is common in most adjudication cases, the favourable decision for Kuntum Melor led to a setting aside, stay and enforcement applications made before the court. Whilst there are 6 grounds identified by the learned judicial commissioner (“JC”) in hearing the setting aside application, this article will only highlight 3 of the said grounds which may be of interest.

“Immediate” is not a due date

S 5(2) CIPAA 2012 requires, among others, that a Payment Claim must identify the due date for payment. The requirement to include the due date is mandatory as s 5(2) CIPAA 2012 uses the words “shall include” (SKS Pavillion Sdn Bhd v Tasoon Injection Pile Sdn Bhd [2019] 9 MLJ 396, 407, 409). It must be immediately obvious upon a perusal of the Payment Claim that the due date for payment has passed in order to trigger the adjudication process.

Kuntum Melor indicated in its Payment Claim that the due date for payment was “immediate”. According to Kuntum Melor, the use of the word “immediate” surely would indicate that the same is immediately due because the time for payment had lapsed. This argument was first put before the adjudicator who agreed with the same.

The learned JC, however, took a different view. To her mind, “date” in s 5(2) CIPAA 2012 must necessarily mean “a calendar date or a statement by which the due (calendar) date for payment is capable of being identified”. Otherwise, a claimant may well substitute “immediate” for “instantly”, “promptly”, “forthwith”, “at once” or “straight away” and yet comply with the mandatory requirements of s 5(2) CIPAA 2012.

As there was no calendar due date in the Payment Claim, therefore the Payment Claim is void and the adjudicator has no jurisdiction to proceed with the adjudication.

Estoppel is not sufficient in and of itself

The claim by Kuntum Melor was essentially for loss and expense. Due to the protracted background between the parties, there was some prior correspondence which suggested that PPHM had previously agreed to pay such loss and expense.

In adjudication, PPHM denied the merits of Kuntum Melor’s claim. The adjudicator took the view that considering PPHM’s previous agreement, PPHM was estopped from denying Kuntum Melor’s entitlement.

In other words, the adjudicator failed to consider the merits of PPHM’s defence on the ground of estoppel.

The learned JC found that the adjudicator had failed to consider PPHM’s defence on its merits. This deprived PPHM from the opportunity to defend its case properly and is a breach of natural justice.

It must be noted that the adjudicator could have considered PPHM’s defence, and yet dismiss it on the ground of estoppel. In such a scenario, it is uncertain that PPHM could prevail on this ground for its setting aside. The problem was when the adjudicator did not delve into the merits of PPHM’s defence and relied on estoppel in and of itself to dismiss PPHM’s defence. This leads to the risk of breach of natural justice during the setting aside application.

The Adjudicator as a “Construction Professional”

Kuntum Melor had quoted Clause 44.1 of the PWD Form 203A to claim “direct loss and/or expense beyond that reasonably contemplated and for which the Contractor would not be reimbursed by a payment made under any other provision in this Contract”.

The adjudicator did not find Clause 44.1 to be useful. In his decision, the adjudicator said as follows:

“I find that Clause 44 is not helpful at all in giving guidance on the definition of ‘direct loss and/or expense’. Nevertheless, it is my view as a Construction Professional that Loss is ‘Any money that the contractor should have received but which he did not receive because of the breach of the Employer’ and Expense is ‘Any cost to the contractor which is more than it would otherwise have been because of the breach of the Employer’”.

PPHM complained that the adjudicator had essentially re-written the contract instead of interpreting the terms therein. The learned JC found that the adjudicator, in going into his own definition as a Construction Professional as aforesaid, had failed to consider the contractual pre-requisites for a claim in loss and expense. The case seems not to have directly answered the question as to whether the conduct of the adjudicator was objectionable on this point, but it bears pointing out adjudicators should do well to stay clear from deviating from the express terms of the contract by reason of the adjudicator’s own experience as a “Construction Professional” to avoid the risk of such a challenge. After all, the terms of the contract in and of themselves ought to be more than sufficient to determine any payment dispute under CIPAA 2012.

Conclusion

An adjudicator’s job is not overly complicated. Consider every claim and defence based entirely on what parties have submitted and decide accordingly. Trouble awaits when a party represented by a consultant (instead of a lawyer) starts making legal submissions before a non-legal adjudicator. There may be nuances to the legal argument that are not immediately apparent, and it would be unfair for the claimant to suffer the consequence of having a favourable adjudication decision set aside after having been put to considerable time and expense in pursuing the same.

Author: Chan Kheng Hoe ([email protected])

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