Adjudication Decisions Pursuant to the Construction Industry Payment and Adjudication Act 2012 (" CIPAA 2012 "); Open to Abuse?

There have always been widespread problems in the construction industry; in securing timely payments, which in turn leads to cash flow impasses and the subsequent halting of projects.

Therefore, on the 15th of July 2009, the Malaysian Cabinet passed a motion for the Construction Industry Payment and Adjudication Act 2012 ('CIPAA') be enacted to resolve these problems. This included, amongst others, an adjudication process; i.e. a summary procedure for the resolution of disputes under a construction contract, by an Adjudicator. It allows the unpaid party under a construction contract to have the dispute resolved with the non-paying in a speedy manner; i.e. the dispute would be resolved within a 100-days' time period.

Further, an adjudication decision can be enforced, in the event of non-compliance; vide Section 28 of CIPAA – by applying to the High Court for an order to enforce the adjudication decision as if it is a judgment or order of the High Court. As such, the adjudication decision can then be executed in accordance with the rules on execution of orders or judgments of the High Court.

However, does this include initiating winding up proceedings pursuant to Section 466 of the Companies Act 2016?

It cannot be argued that parties, for the most part, have resorted to winding up proceedings to wind up a company for its inability to pay its debt pursuant to any order or judgment obtained from Court. As mentioned above, an adjudication decision, upon application under Section 28 of CIPAA, will be treated as an order or judgment of the High Court. Therefore, on the face of it, it appears that "YES", a party can resort to winding up proceedings if the non-complying party is unable to pay its debt pursuant to an adjudication decision.

In fact, the High Court has agreed with this approach and have allowed petitions for winding up against a non-paying party pursuant to an adjudication decision which has been 'registered' (for lack of a better term) in the High Court pursuant to Section 28 of CIPAA.

Notwithstanding the above, and with the greatest respect to the learned Judiciary, this approach will lead to an abuse of process and will go against the very essence of CIPAA. This is so because:-

A) An Adjudication Decision Is Merely "Temporary" In Nature

The Court of Appeal in its recent decision in Martego Sdn Bhd v. Arkitek Meor & Chew Sdn Bhd & Another Appeal [2016] MLJU 1827 had rightly upheld the learned High Court Judge's observation: -

"... there is no need to see Adjudication and Arbitration to be mutually exclusive of each other as Adjudication would only yield a decision of temporary finality and it is only with Arbitration or Litigation that one gets a final and binding decision."

And further:

"After the introduction of Adjudication, both Arbitration and Litigation will still continue except that now there is an additional dispute resolution mechanism of temporary finality that can be embarked upon before or concurrently with Arbitration or Litigation as the case may be. Thus one need not have to choose in an "either or" approach between Adjudication and Arbitration but one can proceed in a "both and" approach in resolving a dispute ... Adjudication under CIPAA was never designed to be in conflict with Arbitration and Litigation and so its process may be activated at any time where there is a valid payment claim under a construction contract. Premised on that proper perspective, the question of which would prevail over the other does not arise at all."

It is therefore clear that, an adjudication decision is merely temporary in nature; designed to ensure that contractors receive the interim payment for work done in a progressive and timely manner, ensuring efficient cash flow. Parties are still allowed to commence litigation or arbitration proceedings after the completion of the project; for e.g. design defects, including errors and omissions, an assertion of variation in contract conditions, etc. which may in fact impact the final claim for payment.

That being the case, if a non-complying party is allowed to be wound up based on an adjudication decision which is merely temporary in nature, the non-complying party will be wrongly denied its right to litigate any other cause of action which may arise from the construction contract; which may in turn, affect the progress and/or final payment claim made by the unpaid party.

B) Winding Up Proceedings Defeat The Purpose Of CIPAA

In the case of RHB Bank Bhd v. Gunasingam Ramasingam [2007] 7 MLJ 492, it was rightly held that; "A creditor who petitions the court to wind up a company under the Companies Act is not exercising his right in personam to execute a judgment debt against the company as he would in an execution proceeding, but merely his right in rem to claim against the assets of the company along with other creditors whom the company may be liable to upon being wound up".

Therefore, winding up proceedings cannot be taken as a mode of enforcement of an adjudication decision. In doing so, one goes against the entire purpose of CIPAA which is, to address cash flow problems in the construction industry - by ensuring timely payment of claims and the subsequent appropriate completion of construction projects.

If a successful unpaid party is allowed to claim against the assets of the non-paying party along with other creditors, this would effectively bring the non-paying party to an end because every debt of the non-paying party would then have to be met. What then would happen to the ongoing construction project? This will inevitably lead to delays and, if the non-paying party’s assets do not meet its debts, the claiming party’s adjudication decision would never be fulfilled.

Hence, a winding up order pursuant to an adjudication decision is clearly against the will of the CIPAA legislation "which is presumed to operate most equitably, justly and reasonably as judged by the ordinary and normal conceptions of what is right and what is wrong and of what is just and what is unjust.".