Facts
Timeline
Setting aside adjudication decision
Stay of adjudication decision – was there a clear and unequivocal error or was it in interest of justice to stay execution of adjudication decision?
Comment
An adjudicator has wide discretionary powers under the Construction Industry Payment and Adjudication Act (CIPAA) 2012. However, can such powers disregard or bypass the restrictions provided for in the Prevention and Control of Infectious Diseases (Measures Within Infected Local Areas) Regulations 2020,(1) more commonly known as the "Movement Control Order" (MCO)? Upon scrutinising the adjudicator's conduct in Itramas Technology Sdn Bhd v Savelite Engineering Sdn Bhd and other cases,(2) the high court held that there was actual bias by the adjudicator, based on, among other things, his failure to give effect to the MCO.(3)
Itramas Technology Sdn Bhd was appointed as the subcontractor to build a solar power plant in Gurun, Kedah. Itramas appointed Savelite Engineering Sdn Bhd to carry out the supply, delivery, installation, testing and commissioning of certain electrical works for the project (the works). While Savelite claimed to have completed the works and that a sum of 2,577,081.62 ringgit was due from Itramas to Savelite, Itramas imposed liquidated damages due to Savelite's delay based on the rate stipulated in the Schedule 17, which was part of the contract.
However, while the Schedule 17 produced by Itramas contained the liquidated damages rate, it was not initialled by Itramas or Savelite. On the other hand, the Schedule 17 produced by Savelite was initialled but the liquidated damages rate was left blank.
The adjudicator wanted to ascertain the facts and law surrounding Schedule 17. The timeline after the service of the adjudication reply provides an important context.
17 March 2020
The adjudication reply was served.
18 March 2020
The MCO came into force.
23 March 2020
The adjudicator issued an inquisitorial order to ascertain the facts and law of Schedule 17 liquidated damages to Itramas, giving Itramas only one day to respond.
24 March 2020
Itramas responded to the adjudicator's inquisitorial order. In brief, Itramas informed the adjudicator that it was impossible to comply with the short deadline. Further, with the MCO in place and Itramas not falling under the "essential services" category, it would be unable to access the bound contract document that was in its office.
The adjudicator issued an inquisitorial order to ascertain the facts and law of Schedule 17 liquidated damages to Savelite, giving Savelite two days to respond.
25 March 2020
Savelite's counsel requested a time extension until 27 March 2020, which the adjudicator allowed.
27 March 2020
Savelite's counsel responded with a letter dated 27 March 2020, which the adjudicator received on 28 March 2020.
28 March 2020
The adjudicator made a decision regarding the inquisitorial orders issued on 23 March 2020 and 24 March 2020. In his email, the adjudicator opined that Itramas had failed to prove or substantiate the parties' initials or agreement on the Schedule 17 that contained the liquidated damages rate. The adjudicator also held that accessing the physical copy of the contract was unnecessary as it should have been submitted under the payment response or adjudication response, rather than the inquisitorial order. Meanwhile, the adjudicator decided that Savelite had failed to submit its written reply within the extended time limit. Thereafter, the adjudicator relied on section 26(1) of the CIPAA to state that there had been a lack of compliance with the CIPAA provisions, which required the adjudicator to set aside the parties' inquisitorial replies.
Setting aside adjudication decision
Actual bias
As the MCO had been in force and the works in this case did not fall under "essential services" as defined by the MCO, Itramas's directors and employees could not go to Itramas's office. The high court noted that had Itramas complied with the adjudicator's inquisitional order of 23 March 2020, Itramas and potentially its employees would have committed an offence under regulations 7(1) and 7(2) of the MCO. The adjudicator's inquisitional order had been issued despite the adjudicator's actual knowledge of the MCO. As such, the court found that the adjudicator's inquisitional order of 23 March 2020 had not been issued in good faith and that the adjudicator could not rely on section 34(1) of the CIPAA, which provides for immunity in civil suits.
The court also took cognisance of the fact that Itramas had been given only one day to comply with the adjudicator's inquisitional order, and it held that an unbiased adjudicator would not have given such an extremely short period to comply with said order.
Further, as a result of the MCO, Itramas could not lawfully accede to the adjudicator's inquisitional order of 23 March 2020. The court held that if the adjudicator were unbiased, he should have accepted the contents of Itramas's response dated 24 March 2020. Instead, the adjudicator had concluded that:
- Itramas had "failed to prove or substantiate" that its Schedule 17 had been signed or initialled by the parties; and
- Itramas had failed to comply with section 26(1) of the CIPAA.
The court held that the contents of the adjudicator's email dated 28 March 2020 showed the adjudicator's actual biasness against Itramas.
Did adjudicator breach duty of impartiality?
By giving Itramas just one day to respond to the relevant inquisitional order, while giving Savelite two days to respond to the relevant inquisitional order, the adjudicator had breached his duty of impartiality. An impartial adjudicator would and should have treated both the claimant and the respondent equally and fairly.
Based on the above, the court allowed the adjudication decision to be set aside. However, the court went on to decide the issue of staying the adjudication decision.
Stay of adjudication decision – was there a clear and unequivocal error or was it in interest of justice to stay execution of adjudication decision?
Should the adjudicator have given effect to the MCO?
As the period of 45 working days in section 12 of the CIPAA does not include the duration of the MCO, the adjudicator should have given effect to the MCO. The court went a step further by highlighting that the failure to do so would jeopardise public health, the protection of which is fundamental to the MCO.
The adjudicator had erred by failing to give effect to the MCO when issuing his inquisitional orders of 23 March 2020 and 24 March 2020 as well as in his email of 28 March 2020, despite having made reference to the MCO in his 23 March 2020 inquisitional order.
Discretionary power of section 25(i) of the CIPAA
The court held that instead of exercising his power under section 25(i) of the CIPAA, the adjudicator should have ordered the parties to produce the original agreement within a specified timeline after the expiry of the MCO. The erroneous exercise of this discretionary power resulted in the inquisitional orders and email of 28 March 2020.
Reliance on section 26 of the CIPAA
Section 26 of the CIPAA deals with the "Power of Adjudicator Not Affected by Non-Compliance". The court held that section 26(1) of the CIPAA applies only when a party has not complied with a provision of the CIPAA. With that in mind, as neither party had breached any of the CIPAA provisions, the adjudicator's reliance on this provision was unfounded. Even if a party had breached an order that had been issued by the adjudicator under section 25 of the CIPAA, such a breach would not be in contravention of any provision of the CIPAA that would trigger the application of section 26(1) of the CIPAA. Thus, the court held that the adjudicator's reliance on section 26(1) of the CIPAA was an error of law.
Meanwhile, section 26(2) of the CIPAA applies when a party has breached an order that was issued by an adjudicator under section 25 of the CIPAA or when a party has not complied with a matter regarding the production of documents in an adjudication proceeding. As the inquisitional orders in this case and the email of 28 March 2020 were found to be erroneous, the adjudicator had wrongfully set aside the responses of Itramas and Savelite.
The court's decision serves as a reminder to adjudicators that although it is important to comply with the strict timelines in the CIPAA, care must be taken to ensure that fairness and reasonableness are considered in every decision. An adjudicator should take into account the ongoing restrictions that are in place, such as the MCO in effect at that time, or any such other limitations (eg, an enhanced MCO).
As most legislation cannot be updated consistently to keep up with the daily realities that the covid-19 pandemic presents, it is up to decision makers to ensure that the purpose of the legislation and the rights of parties are well balanced. At a time when working from home is encouraged and it is common for offices to be temporarily closed for reasons such as sanitisation, adjudicators and parties alike must be attuned to the fact that more time than is usually required may be needed to comply with instructions.
For further information on this topic please contact Foo Joon Liang or Tasha Lim Yi Chien at Gan Partnership by telephone (+603 7931 7060) or email ([email protected] or [email protected]). The Gan Partnership website can be accessed at www.ganlaw.my.
Endnotes
(1) Prevention and Control of Infectious Diseases (Measures Within Infected Local Areas) Regulations 2020 - [PU (A) 91/2020].
(2) Itramas Technology Sdn Bhd v Savelite Engineering Sdn Bhd and other cases [2021] MLJU 1382.
(3) While there were several issues raised in this decision, this article will discuss only a few salient points.