VIEW ESTEEM CASE – ADJUDICATION DECISIONS CAN NOW BE STAYED DUE TO “CLEAR ERRORS”

On 6 November 2017, the Federal Court in View Esteem Sdn Bhd v Bina Puri Holdings Bhd widened the grounds on which an adjudication decision can be stayed, to include “clear errors” and “justice of the individual case”.  As a result, there is now less certainty whether a successful claimant would be able to enforce the adjudication decision.

 

Background

A respondent who has lost the adjudication can apply to court to stay (i.e. suspend) the adjudication decision.  This avenue is provided under s 16 of CIPAA.  If a stay is granted, the respondent would not have to pay the claimant the sums awarded by the adjudicator.

The stay can be applied for in 2 circumstances – (i) where the respondent has also applied to set aside the adjudication decision, or (ii) where the dispute in question is also pending in arbitration or in court.

To obtain a stay, the respondent has to show that if he pays the claimant now, the claimant would not be able to refund the payment should the respondent later succeed in the setting aside application or in arbitration / court.  To show inability to refund, a respondent would usually point to the claimant’s (bad) financial position.

Before the Federal Court decision, the above test was the sole factor to be taken into account.  This was according to law established by the High Court and Court of Appeal in several cases.

The test is the same as the one applied by the courts when a stay of a court judgment (as opposed to an adjudication decision) is sought pending appeal.

 

View Esteem

In View Esteem, the Federal Court held that the test for a s 16 stay is not limited to considering only the financial capacity of the claimant to repay the respondent; that is not the only factor.  The availability of a stay is a safeguard to a “likely wrongful” adjudication decision.  The courts are empowered to find a “middle ground” in cases of clear errors.  The courts have the flexibility of granting a stay where there are “clear errors” or to meet the “justice of the individual case”, although a stay would not be readily given.  A stay can be granted to remedy an injustice due to a breach of natural justice or “errors” in the adjudication decision.

The Federal Court noted that s 16, CIPAA did not say that the test is limited to considering the claimant’s financial ability to repay.  As such, the Federal Court reasoned that the grounds for a stay can be wider.

However, if one compares this with the rules of court for staying a court judgment, those rules also do not say the test is limited to considering a successful plaintiff’s financial ability to repay.  Yet, the courts have nevertheless interpreted them such that that financial ability is the factor to consider.

 

Ramifications

The Federal Court decision suggests that a stay may be granted for reasons wider than those that will justify the setting aside of the adjudication decision.  It may be granted where (i) there are “clear errors” in the adjudication decision or (ii) to meet the “justice of the individual case”.  However, both those reasons are not grounds for setting aside the decision.

The grounds for setting aside – listed under s 15 of CIPAA – is very limited and do not concern the merits of the dispute.  Hence, it is established law that an adjudication decision will not be set aside even if the adjudicator made a mistake on the law or the facts.  This approach is in line with the jurisprudence in other countries, eg. England and Singapore.

Where the reasons for a stay are wider than that for setting aside, the stay will become an avenue for the respondent to deprive the adjudication decision of any effect by the back door.

Further, the requirements of “clear errors” and “justice of the individual case” are vague.  What may be clear to me might not seem clear to you.  Both requirements are inherently subjective.  Hence, there is now a considerable degree of uncertainty whether the claimant – having won the adjudication – would be able to enjoy the fruits of his success or be prevented from doing so before the courts.

The Federal Court did say that a stay ought not to be readily given and caution must be exercised when doing so.  But how these qualifications operate in practice vis-à-vis the widening of the grounds for a stay remain to be seen.

At a doctrinal level, it is difficult to reconcile the approaches under the law currently.  On the one hand, where setting aside is concerned, the courts will not interfere with an adjudication decision where the adjudicator committed a mistake on the merits.  On the other hand, the courts may stay the decision where it contains a “clear” error.  In effect, this amounts to interfering with the decision when there is a mistake on the merits.  Such an approach is also starkly different from that of staying court judgments, whereby the merits of the dispute is not a relevant factor.

CIPAA was enacted with the main purpose of easing the cash flow of contractors by introducing statutory adjudication as a speedy means of dispute resolution.  In line with this purpose, there must be high certainty that a claimant would be able to enforce an adjudication decision in his favour.  Unfortunately, the degree of such certainty is now reduced.

The contents of this article are published for the purpose of general information only; they are not to be regarded, used or relied on as legal advice for any matter.  Please contact us if you require legal advice specific to your case.