Adjudication continues to be a popular choice of dispute resolution in the construction industry in Malaysia since the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) came into force on 15.4.2020. The expedited adjudication process has been described as “rough justice” and can leave the unsuccessful party very unhappy with the decision.
In such circumstances, the unsuccessful party can seek to overcome the adjudication decision by taking the dispute either to court or arbitration (see Section 13(c) of CIPAA 2012). In certain circumstances, an aggrieved party can also challenge an adjudication decision by making an application to set it aside at the High Court. This article explains the grounds to set aside an adjudication decision.
Grounds for Setting Aside an Adjudication Decision
Pursuant to section 15 of CIPAA 2012, an adjudication decision can only be set aside on one of the following four grounds:
(a) The adjudication decision was improperly procured through fraud or bribery;
(b) There has been a denial of natural justice;
(c) The adjudicator has not acted independently or impartially; or
(d) The adjudicator has acted in excess of his jurisdiction.
(A) Improperly procured through Fraud or Bribery
In the case of Gumi Asli Electrikal Sdn Bhd v Dazzling Electrical (M) Sdn Bhd & Another Case  1 LNS 189, the High Court held that two elements have to be proven to invoke section 15(a) of CIPAA 2012: (i) fraud has been committed; and (ii) that the adjudication decision has been “improperly procured” through the fraud. Even if fraud is proven, if the fraud does not affect the adjudication decision, the decision may not be set aside. Parties will have to adduce sufficient evidence to prove fraud and that the fraud led to the adjudication decision. To date, there have not been any reported decisions that have succeeded on the ground of fraud.
(B) Breach of Natural Justice
Natural justice refers to the parties’ right to a hearing that is fair and free from bias. A breach of natural justice arises when a party is deprived of the fair opportunity to present evidence and arguments before an adjudicator makes his decision. Some examples of a breach of natural justice which have resulted in the setting aside of an adjudication award include:
- Unilateral communication between the adjudicator and one of the parties without the knowledge of the other party (WRP Asia Pacific Sdn Bhd v NS Bluescope Lysaght Malaysia Sdn Bhd  MLJU 1125).
- Reference by the adjudicator to a document that was not previously disclosed to parties (Cescon Engineers Sdn Bhd v Pesat Bumi Sdn Bhd & Another Case  MLJU 2248).
- Refusal or failure by the adjudicator to consider all claims or defences (View Esteem Sdn Bhd v Bina Puri Holdings Bhd  2 MLJ 22).
(C) Did not act independently or impartially
As the principle goes, “… justice should not only be done, but should manifestly and undoubtedly be seen to be done.” (R v Sussex Justices, ex p McCarthy  1 KB 256 at p 259). In the conduct of adjudication proceedings, an adjudicator is under a duty to act impartially and in an unbiased manner, be it in fact or in perception. For example, parties should be afforded the same time for submitting documents, equal opportunity to adduce expert evidence, equal opportunity to address the tribunal during a hearing etc.
The adjudicator is also under a duty to disclose and avoid any conflict of interest. In the case of Itramas Technology Sdn Bhd v Savelite Engineering Sdn Bhd  MLJU 1382, the High Court applied the “real possibility of bias” test in determining whether an adjudicator has acted independently or impartially. The “real possibility of bias” test is an objective test which examines whether a fair-minded and informed observer would conclude that there was a real possibility that the tribunal was biased.
(D) In excess of jurisdiction
Excess of jurisdiction is a common ground raised in setting aside applications. An adjudicator is said to have acted in excess of his jurisdiction when he proceeds to determine an issue that was not within the scope of the adjudication proceedings or has failed to act in accordance with the statutory provisions of CIPAA 2012.
Examples of adjudicators acting in excess of jurisdiction include:
- Deciding on a matter that was not raised in the payment claim and payment response.
- Deciding on a dispute that is not related to construction works or construction contracts (Hiform (M) Sdn Bhd v. Pembinaan Bukit Timah Sdn Bhd  1 LNS 2172).
- Failure of the adjudicator to deliver its adjudication decision within the 45 working days as stipulated in Section 12 of CIPAA 2012 (MRCB Builders Sdn Bhd v SMM Resources Sdn Bhd and another case  MLJU 1455)
Not an Appeal
The court can only set aside an adjudication decision based on the four grounds as stated above. A setting aside application is not an appeal. Hence, the court cannot set aside an adjudication even if it is of the opinion that the adjudicator made an error on a finding of fact or on interpretation of the law. The Court of Appeal in the case of ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd and another appeal  MLJU 1776 succinctly held:
“In the context of section 15 of CIPAA 2012, it cannot be the function of the Court to look into or review the merits of the case or to decide the facts of the case. The facts are for the adjudicator to assess and decide on. The Court’s function is simply to look at the manner in which the adjudicator conducted the hearing and whether he had committed an error of law during that process. Such error of law relates to whether he had accorded procedural fairness to the Appellant.”
If there are valid grounds to set aside an adjudication decision, a dissatisfied party should proceed to have the dispute reargued and reheard in court or arbitration proceedings. Under section 13(c) of CIPAA 2012, an adjudication decision is not binding if a dispute is finally disposed of in court or arbitration.
Given the “temporary finality” nature of adjudication decisions, an unsuccessful party may either relitigate the matter by initiating arbitration or court proceedings or to apply to set aside when it receives an unsatisfactory adjudication decision. However, depending on the facts of the case, a setting aside application may not be the most appropriate action to pursue.
In deciding whether a setting aside application ought to be pursued, each case should be examined in its unique circumstances to determine the most appropriate and cost-effective remedy. Parties are encouraged to seek professional legal advice on their cases’ particular facts and circumstances.
For more information, you may watch a replay of the MWKA Online Talk “Setting Aside an Adjudication Decision – Can it be done?” A copy of the talk slides in PDF format is available for download here.
By Denise Phang & Hannah Patrick
Note: This article does not constitute legal advice. As the facts and circumstances of every case will differ, it is best that you obtain legal advice suited for the issues that you may be facing. Feel free to contact us for a complimentary legal consultation.