Breach of Natural Justice Under the Construction Industry Payment and Adjudication - Malaysia
The Construction Industry Payment and Adjudication Act 2012 (“Act”) was introduced to address cash flow issues affecting contractors in the construction industry as a result of delays and/or lengthy periods of payment under construction contracts.
Under the Act, an unpaid party  is entitled to initiate an adjudication proceeding in order to claim any amounts due and/or owing to them under a construction contract.
Briefly, an adjudication proceeding must consist of a payment claim  and payment response , followed by an adjudication claim , adjudication response  and adjudication reply , all of which are to be filed strictly within the time periods stipulated under the Act (it may vary from five working days to 10 working days).
Once the necessary pleadings are filed, an adjudicator is then tasked with the duty to resolve payment-related issues and possibly ease the cash flow between parties by delivering a decision within 45 working days.
Setting aside an adjudication decision for breach of natural justice
Once an adjudication decision has been obtained, parties are provided with an avenue to set aside an adjudication decision. Parties can only make an application to set aside the decision on four specific grounds listed under section 15 of the Act. One of the four grounds for setting aside an adjudication decision is the denial of natural justice (section 15(b) of the Act).
However, it may not be an easy task to satisfy the court that there has been a breach of natural justice for setting aside an adjudication decision.
The Court of Appeal in Leap Modulation Sdn Bhd v PCP Construction Sdn Bhd  upheld the position on breach of natural justice taken in the English case of Primus Build Limited v Pompey Centre Limited & Slide silver Limited  that:
“…if there has been a breach of natural justice, but it cannot be demonstrated that it goes to the heart of the adjudicator’s decision, it will not affect the enforcement of that decision.”
Likewise, in Kerajaan Malaysia v Shimizu Corp , the High Court emphasized that an allegation of breach of natural justice by an adjudicator must be material and not made on mere grounds of dissatisfaction.
“…a breach of natural justice must be ‘either decisive or of considerable potential importance to the outcome and not peripheral or irrelevant, it must be material’...”
There have been a few recent cases where aggrieved parties were successful in their setting aside applications on the ground that the adjudicator had denied them natural justice. Below are some examples.
“A refusal to assume jurisdiction and decide on the matter submitted to it on the erroneous understanding of his lack of jurisdiction would be equally a breach of natural justice in that the Claimant’s Claim, in this case, under Claim No. 4 for ‘Loss and Expense Claim’ was not heard at all when it has been properly submitted for Adjudication.”
The High Court echoed the decision in Pilon Ltd v Breyer Group Plc  where the Court stated that, when an adjudicator erroneously takes a restrictive view of its own jurisdiction, it is tantamount to a breach of natural justice.
Although an application to set aside an adjudication decision on the ground of breach of natural justice is a difficult task, an aggrieved party may still be successful if he is able to show that the breach of natural justice was in fact material and, in some instances, arose out of the adjudicator’s too narrow interpretation of his own jurisdiction under the Act.
 Defined under Section 4 of the Act as “a party who claims payment of a sum which has not been
paid in whole or in part under a construction contract”.
 Section 5 of the Act.
 Section 6 of the Act.
 Section 9 of the Act.
 Section 10 of the Act.
 Section 11 of the Act
  MLJU 773
  EWHC 1487
  MLJU 169
  2 MLJ 22
  MLJU 217
  MLJU 673
  EWHC 837 (TCC)
This article is presented for information purpose only and covers legal issues in a general way.
The contents are not intended to constitute advice on any specific matter and should not be relied upon as a substitute for detailed legal advice.
© 2018 Shearn Delamore & Co. All rights reserved.
For further information regarding financial services matters, please contact our Dispute Resolution Practice Group.
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