Econpile (M) Sdn Bhd v ASM Development (KL) Sdn Bhd and another appeal [2024] 3 MLJ 157

Federal Court (Putrajaya)

Adjudication

(1)  Econpile (M) Sdn Bhd was appointed by ASM Development (KL) Sdn Bhd as a subcontractor to carry out piling and related works. A dispute arose when ASM failed to pay Econpile the full amount for work that had been certified.

(2)  Econpile initiated adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (CIPAA) to recover the outstanding payment. In response, ASM raised set-offs and cross-claims, alleging defects and delays in Econpile’s performance.

(3)  The adjudicator found in favour of Econpile and ordered ASM to pay the outstanding sum, rejecting ASM’s set-offs and counterclaims. Dissatisfied, ASM applied to the High Court to set aside the adjudicator’s decision, and the High Court ruled in ASM’s favour.

(4)  Econpile then appealed to the Court of Appeal (“COA”)  and later to the Federal Court (“FC”). The main legal issue concerned whether an adjudicator under CIPAA could ignore set-offs and cross-claims raised by the respondent and the scope of disputes allowed in adjudication proceedings.

(1)  Whether an adjudication decision, after having been enforced pursuant to s 28 of the CIPAA 2012 as an order of the court can be stayed pursuant to s 16(1)(b) of the CIPAA 2012.

(2)  Whether the COA in so deciding to allow the stay application pursuant to paragraph 16(1)(b) of the CIPAA 2012 has overruled or disagreed, or gone beyond the ratio decidendi of the FC’s decision in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22; [2019] 5 CLJ 479.

(1)  Whether an adjudication decision, after having been enforced pursuant to s 28 of the CIPAA 2012 as an order of the court can be stayed pursuant to s 16(1)(b) of the CIPAA 2012?

(a) The FC answered this question in the negative. The FC held –

‘An adjudication decision after having been enforced pursuant to s 28 of the CIPAA as an order of the court cannot be stayed pursuant to s 16(1)(b) of the CIPAA.’ (para [50]).

(b) The FC held that there is no statutory provision within CIPAA that allows an adjudication decision to be stayed after it has been enforced through the High Court under section 28. Accordingly, the FC stated that –

‘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. To do so would be incongruent to the intent and purpose of the CIPAA’. (para [48]).

(c)  The FC emphasized that CIPAA ensures cash flow continuity and provides a temporary resolution mechanism for payment disputes. Permitting a stay after enforcement would defeat the object and purpose of the statute.

(2)  Whether the COA in so deciding to allow the stay application pursuant to paragraph 16(1)(b) of the CIPAA 2012 has overruled or disagreed, or gone beyond the ratio decidendi of the FC’s decision in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22; [2019] 5 CLJ 479.

(a) The FC answered this question in the affirmative–

‘By interpreting CIPAA in the manner it had done, the Court of Appeal… had acted in excess of its jurisdiction… The parties… have no option but to comply with the orders… unless and only unless it has been set aside under s 16.’ (para [49]).

‘The principles enunciated by this court in View Esteem must be followed in an application for a stay of an adjudication decision pursuant to s 16’. (para [51]).

(b) The FC further held that the COA had erred in its interpretation by allowing a stay post-enforcement, thereby departing from the authoritative precedent set in the case of View Esteem where it was recognized that a stay may be granted in exceptional circumstances, but only where an adjudication decision is being set aside or the dispute is pending final determination and not after enforcement under section 28 of the same Act.

(c)  The decision reinforces the binding nature of adjudication decisions unless set aside under section 15, and clarifies that enforcement under section 28 renders a stay under section 16 inapplicable.

1. The FC allowed the appeal and reinstated the adjudication decision in favour of Econpile (M) Sdn Bhd. The Court held that the adjudicator had not breached the rules of natural justice and had acted within his jurisdiction by considering the set-offs and defences raised by ASM Development (KL) Sdn Bhd. Therefore, the High Court was wrong to set aside the adjudication decision.

1. Adjudicators must consider set-offs and cross-claims raised during adjudication, and the adjudicator’s decision must be upheld unless there are issues of jurisdiction or serious breach of natural justice.
2. A dispute under CIPAA arises once the due date for payment has passed without full payment, and the Act is designed to ensure timely payment even before the final determination of the contract.
3. Adjudicators may consider all relevant materials submitted in the adjudication proceedings, as CIPAA allows for a flexible and expedited process to resolve payment disputes.
4. Natural justice is essential, and a breach of natural justice or adjudicator’s lack of jurisdiction are the only recognised grounds to set aside an adjudication decision under section 15 of CIPAA.
5. The Courts should not interfere with adjudication decisions unless the decision offends the principles of natural justice or is made without jurisdiction, as judicial intervention in other circumstances would defeat the intent and purpose of CIPAA.