Once a successful party obtains an adjudication decision under the Construction Industry Payment and Adjudication Act (CIPAA) 2012, the next step is usually to enforce the adjudication decision pursuant to section 28 of the CIPAA (enforcement order). Meanwhile, the losing party often attempts to set aside or stay the adjudication decision under sections 15 or 16 of the CIPAA.
However, what if an application to stay is made after an enforcement order has been granted and the application to set aside the adjudication decision has been dismissed? The court addressed this scenario in the recent case of MKP Builders Sdn Bhd v PC Geotechnic Sdn Bhd [(2021) MLJU 1061].
Facts
In a web of litigation involving various parties to a highway construction project, the focus of this case was the subcontractor MKP Builders Sdn Bhd and their appointed subcontractor for bored piling works, PC Geotechnic Sdn Bhd (PCG).
Following an adjudication decision granted in favour of PCG on 12 December 2019, PCG sought an enforcement order, while MKP sought to set aside the order pursuant to section 15 of the CIPAA. On 14 August 2020, the High Court decided that the enforcement order was granted and the setting aside application was dismissed. MKP appealed to the Court of Appeal, and PCG presented a winding-up petition premised on the adjudication decision.
MKP then sought a stay of the enforcement order pending the disposal of the Shah Alam civil suit [BA-22C-37-09/2020], which MKP had filed against PCG.
The main issue before the High Court was whether it had the power under section 16(1)(b) of the CIPAA to stay the PCG-MKP adjudication decision that had already been granted enforcement status. This raised the following questions:
- Was MKP barred by the estoppel principle from filing a stay application when it could have done so when the enforcement and setting aside applications were heard together?
- Did PCG’s winding-up petition provide grounds to allow the stay application?
Decision
Staying Enforcement
Section 16(1) of the CIPAA allows a party to apply to the High Court for a stay of an adjudication decision in two circumstances:
- When an application to set aside the adjudication decision has been made (section 16(1)(a) CIPAA); or
- When the subject matter of the adjudication decision is pending final determination by arbitration or the courts (section 16(1)(b) CIPAA).
The Court held that once an enforcement order has been granted, the courts cannot subsequently stay the execution of the adjudication decision pending the outcome of litigation or arbitration. Granting a stay under section 16(1)(b) while an enforcement order exists would result in conflicting orders. Therefore, a stay can only be made before an adjudication decision is enforced.
However, a party may, while appealing against an enforcement order, seek to stay the execution of the enforcement order under section 73 of the Courts of Judicature Act 1964 and Rule 13 of the Rules of the Court of Appeal 1994.
In interpreting sections 16(1)(b) and 28 of the CIPAA, the Court considered the objective of the CIPAA and noted that no prejudice had been suffered. Adjudication decisions are only temporarily final as they remain subject to final determination through litigation or arbitration (section 13(c) CIPAA).
Barred by Estoppel
As MKP’s setting aside application was dismissed while the enforcement order was granted in favour of PCG, the High Court held that the principle of estoppel applied against MKP.
Further, when the enforcement and setting aside applications were first heard, MKP’s counsel informed the Court that no instruction had been given to file a stay application.
Reliance on Winding-Up Petition
MKP’s supporting affidavit did not rely on PCG’s winding-up petition as a ground for the stay application. Order 69A, Rule 4 of the Rules of Court 2012 mandates that a stay application must be supported by an affidavit stating the grounds on which the adjudication decision should be stayed.
The Court held that relying on reasons not stated in the supporting affidavit would be unjust, as the opposing party would be deprived of the opportunity to respond. Accordingly, MKP’s reliance on PCG’s winding-up petition was disregarded.
Even if a winding-up petition could support a stay application, the Court noted that it could not prevent PCG from exercising its statutory right to wind up MKP under sections 464(1)(b) and 465(1)(e) of the Companies Act 2016, particularly since an enforcement order had been obtained and the setting aside application dismissed.
Furthermore, as MKP could not apply for a Fortuna Injunction to restrain PCG from presenting a winding-up petition, it could not rely on the petition as grounds for a stay.
Comment
This case serves as a caution for parties seeking a stay of an adjudication decision: prompt action before an enforcement order is made is critical. Courts are unlikely to allow a stay of the adjudication decision under section 16 of the CIPAA after an enforcement order has been granted. The only recourse at that stage is to seek a stay of the execution of the enforcement order.
The High Court found that dismissing the application to set aside the adjudication decision and granting enforcement created an estoppel against the stay application. While it was unclear which order gave rise to issue estoppel, it should not be the setting aside application, as a stay and a setting aside application are based on different legal tests. A stay may be granted where a clear error is demonstrated, but such an error alone is not grounds for setting aside.
It remains unclear whether the High Court was asked to consider whether an enforcement order converts the adjudication decision into a judgment or court order, as section 28 of the CIPAA provides only for “an order to enforce the adjudication decision as if it is a judgment or order of the High Court.”
Parties should also note the mandatory requirements under Order 69A, Rule 4 of the Rules of Court to ensure that all grounds relied upon are expressly stated in the supporting affidavit. Failure to do so may result in the courts disregarding unannounced grounds, disadvantaging the stay application.
Contact
Foo Joon Liang FCIArb FSIArb FHKIArb
Partner, Gan Partnership
E: joonliang@ganlaw.my
Tasha Lim Yi Chien
Associate, Gan Partnership
E: tasha@ganlaw.my
(1) For an example, see the Federal Court’s decision in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2019] 5 CLJ 479.
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at 20 July 2021.
