We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
07 April 2020
A high court recently issued the first decision regarding a constitutional challenge of the legitimacy of statutory adjudication under the Construction Industry Payment and Adjudication Act 2012 (CIPAA). In this case, the high court was also confronted with a challenge of the appointment of the late Vinayak Pradhan as the then director of the Asian International Arbitration Centre (AIAC) and the immunity asserted by the AIAC, Pradhan and the adjudicator.
The legal action was initiated by way of an originating summons. Alongside Pradhan and the AIAC, Kinta Bakti Sdn Bhd and Soh Lieh Seng were named as the first and second defendants in the action. The minister of works, the minister of law and the government were subsequently named as the fifth, sixth and seventh defendants after the action had commenced.
The action arose from an adjudication under the CIPAA between Mega Sasa Sdn Bhd and Kinta Bakti. Soh was appointed by Pradhan as the adjudicator in that adjudication.
Mega Sasa sought, among other forms of relief, a declaration that:
Given the numerous interlocutory applications that had been filed, by the time that the originating summons came to be heard, the adjudication decision had already been delivered. The high court was thus called on to determine whether:
Public law exception
The high court acknowledged that the need to make a determination regarding Mega Sasa's pleas in the action could be perceived as academic due to the prior making of the adjudication decision by Soh.
Nevertheless, the high court held that the originating summons came within the narrow public law exception and thus should be determined, notwithstanding the fact that it may have been academic.
CIPAA statutory adjudication scheme constitutional
The high court held that statutory adjudication under the CIPAA does not violate Article 8(1) of the Federal Constitution on the premise that:
The high court also rejected Mega Sasa's challenge that adjudication under the CIPAA is a usurpation of the judicial power of the court and thus a violation of Article 121 of the Federal Constitution. This is because statutory adjudication under the CIPAA is a judicial function and not a replacement of the courts' judicial power under Article 121. Further, although adjudication under the CIPAA is binding, it does not provide finality as the courts maintain the power to issue final judgments and orders.
Adjudicator's fees and expenses and AIAC administrative fees constitutional
In this regard, the high court found that the CIPAA does not discriminate between the parties to an adjudication in terms of adjudication fees and expenses or AIAC administrative fees. The 'costs follow the event' principle that penalises the losing party is also applied in the court proceedings and is reasonable.
Mega Sasa also challenged the legality of the administrative fees charged by the AIAC pursuant to Rule 9(2)(b) of the AIAC Adjudication Rules and Procedures on the ground that the rule and procedure is ultra vires of the statute. Satisfied with the evidence that the necessary consultative processes required under Sections 33 and 39 of the CIPAA had been complied with, the high court held that Mega Sasa's challenge should be commenced by way of a judicial review and that it was therefore inappropriate and unnecessary to determine this issue of illegality.
Pradhan's directorship valid
It was undisputed that Pradhan had been initially and properly appointed as acting director of the AIAC by the government and the Asian-African Legal Consultative Organisation (AALCO). The dispute concerned Pradhan's appointment as director of the AIAC, which was alleged to have been made by the government without consulting AALCO.
In this regard, the high court ruled that:
Further, the high court found that in any event, Pradhan had at least still been acting director of the AIAC even if he was not the director. Even as acting director, he had had the power and duty to appoint Soh as the adjudicator.
AIAC, Pradhan and adjudicator enjoyed immunity from proceedings
The high court held that Section 34(1) of the CIPAA conferred immunity on both Soh and Pradhan from being sued by Mega Sasa in the originating summons.
The high court further held that Pradhan and the AIAC enjoyed immunity from the proceedings pursuant to:
This decision aligns with a number of high court decisions on the immunity of the AIAC and the adjudicator (eg, One Amerin Residence Sdn Bhd v Asian International Arbitration Centre ( 1 LNS 904)).
At any given time there will always be a large number of adjudications underway and numerous challenges pending before the courts. Further, there is no time limit to challenge an adjudication decision as long as it has not been enforced as a judgment under the CIPAA. Thus, a finding that statutory adjudication under the CIPAA was unconstitutional, or that the AIAC was incompetent to appoint adjudicators due to Pradhan's lack of capacity, would have had far-reaching implications for statutory adjudication in Malaysia.
A number of adjudications continue to be challenged on the ground that the appointment of the adjudicator was invalid because the appointment of Pradhan was invalid. This was therefore a significant decision by the high court.
Mega Sasa has appealed the high court's decision.
For further information on this topic please contact Foo Joon Liang or Kang Mei Yee at Gan Partnership by telephone (+603 2201 1130) or email (email@example.com or firstname.lastname@example.org). The Gan Partnership website can be accessed at www.ganlaw.my.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.