High Court Enforces CIPAA Adjudication Decision in Construction Payment Dispute, Upholds Late Payment Interest Award

Introduction

In a significant ruling on construction adjudication under the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012), Judicial Commissioner Sumathi Murugiah of the High Court dismissed Mayfair Ventures Sdn Bhd's application to set aside an adjudication decision favoring Setiakon Builders Sdn Bhd. The court also rejected a stay of execution and granted Setiakon's application to enforce the decision, which awarded approximately RM4.13 million including late payment interest. This case underscores the robustness of adjudication processes in resolving payment disputes in Malaysia's construction sector, emphasizing that challenges based on natural justice or jurisdictional overreach must be substantiated.

Case Background

Setiakon Builders Sdn Bhd was appointed as the main contractor by Mayfair Ventures Sdn Bhd via a Letter of Award dated June 16, 2016, for a large-scale residential and commercial project in Petaling Jaya, Selangor, with a contract sum of RM223,538,378.36. The project involved constructing high-rise service apartments, SOHO units, retail spaces, recreational facilities, and parking blocks across two phases.

The dispute arose from Mayfair's failure to pay certified amounts despite the issuance of Architect Certificates. Setiakon completed works certified under Interim Certificate No. 44R (dated August 19, 2020) and No. 46 (dated September 20, 2021), leaving balances of RM1,337,584.91 and RM497,374.52 unpaid, respectively. Additionally, upon expiry of the Defect Liability Period on July 30, 2022, Mayfair withheld the retention sum of RM4,481,155.56, due 30 days later. Under Clause 30.17 of the PAM Contract 2006 conditions, Setiakon claimed late payment interest at Maybank's Base Lending Rate plus 1%, totaling RM2,493,315.94 up to November 10, 2023.

Setiakon issued a Payment Claim on November 10, 2023, for RM8,809,430.93. Mayfair's Payment Response disputed parts of the claim, particularly the retention sum's release tied to a Certificate of Making Good Defects (CMGD) and final account adjustments. With no payment forthcoming, Setiakon initiated adjudication on November 29, 2023. Adjudicator Daphne Ranee Dawson awarded Setiakon RM4,131,813.45 plus 5% interest from April 16, 2024, and costs.

Mayfair filed Originating Summons No. BA-24C-18-05/2023 to set aside the decision under Sections 15(b) and (d) of CIPAA 2012, and sought a stay under Section 16(a). Setiakon filed Originating Summons No. BA-24C-23-06/2023 to enforce under Section 28. The matters were heard together on November 28, 2024.

The main legal questions were: (1) Whether the adjudicator breached natural justice by failing to consider Mayfair's defenses; (2) Whether the adjudicator exceeded jurisdiction by awarding late payment interest on paid certificates; and (3) Whether the decision should be enforced absent payment.

Arguments Presented

Mayfair Ventures Sdn Bhd's Contentions:
Mayfair argued that the adjudicator breached natural justice under Section 15(b) of CIPAA 2012 by not considering key defenses in its Adjudication Response. Specifically, it claimed works at Level LG remained incomplete, disqualifying payments under Certificates 44R and 46; five extensions of time were granted without conditions barring interest claims; and varying issuance dates of certificates warranted different interest rates, not a uniform one.

On jurisdiction under Section 15(d), Mayfair contended the adjudicator overstepped by awarding late payment interest on already-paid progress certificates (Nos. 1-46, excluding 44R and 46), including "interest on interest" (compound interest). It argued late payment interest does not qualify as "payment" under Section 4 of CIPAA 2012, as the principal sums were settled, and no cause of action existed since the claim's due date aligned with the Payment Claim issuance. Mayfair also sought a stay of execution under Section 16(1)(a), citing ongoing appeals and project ties like car park vacation.

Setiakon Builders Sdn Bhd's Contentions:
Setiakon defended the adjudication decision, asserting the adjudicator fully considered all submissions, including Mayfair's arguments on incomplete works, extensions, and interest rates, without denying procedural fairness. It emphasized that Mayfair admitted RM6,316,114.99 of the claim (payable post-CMGD and car park vacation) and raised no objections to late payment interest in its Payment or Adjudication Responses, nor any set-offs or counterclaims.

Setiakon argued late payment interest arose directly from delayed certified payments under the contract, qualifying as "payment" under CIPAA 2012. The claim was properly within the adjudicator's core jurisdiction per Section 27(1), limited to the Payment Claim's subject matter. It disputed compound interest allegations, noting the awarded interest ran from the adjudication date on the adjudicated sum only. Setiakon urged enforcement under Section 28, as the amount remained unpaid and no valid grounds existed to set aside or stay the decision.

Legal Analysis

The court meticulously examined Mayfair's challenges under Sections 15(b) and (d) of CIPAA 2012, drawing on established precedents to affirm the adjudication's validity.

On natural justice (Section 15(b)), the court referenced MRCB Builders Sdn Bhd v Wazam Ventures Sdn Bhd [2020] 1 LNS 891, where even one reasoned finding suffices to negate breach claims. It also cited ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd [2016] 1 LNS 1522, defining natural justice as procedural fairness, including the right to be heard ( audi alteram partem ). The judgment noted the adjudicator deliberated all issues—unpaid certificates, extensions, and interest rates—under relevant subheadings, adjusting the interest award by deducting prior payments (e.g., RM196,461.92 for Certificate 37). Citing Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd , the court stressed adjudication is not appealable on merits; errors, if any, are remedied via arbitration or litigation per Section 13(c). Thus, no breach occurred.

For jurisdiction (Section 15(d)), the court applied the framework from Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd [2017] 1 LNS 177, classifying core jurisdiction as whether the dispute falls under CIPAA's subject matter. Late payment interest was deemed integral to "payment" under Section 4, arising from delayed work payments under Clause 30.17, not standalone. Mayfair's failure to object in responses waived challenges, per Section 25(o). Precedents like Rimbunan Raya Sdn Bhd v Wong Brothers Building Construction Sdn Bhd and Raps Solution Sdn Bhd v Itramas Technology Sdn Bhd confirmed adjudicators' discretion under Sections 12(1), 25(d), and 25(i) to determine such interest. Anas Construction Sdn Bhd v JKP Sdn Bhd clarified Section 27(1) limits jurisdiction to the Payment Claim's cause of action, which included the interest here. The court rejected compound interest claims, as post-adjudication interest was simple and separate. Mayfair's cited cases ( PI Brilliant Bhd v Islah Mega Sdn Bhd , Rosha Dynamic Sdn Bhd v Mohd Salehhodin Bin Sabiyee ) were distinguished, as interest here stemmed from contract delays.

The analysis distinguished core jurisdiction (subject matter validity) from competence (procedural limits), finding no excess. For enforcement under Section 28 and stay denial under Section 16(1)(a), Inai Kiara Sdn Bhd v Puteri Nusantara Sdn Bhd guided discretion, satisfied by the favorable decision, non-payment, and no prohibitions.

Key Observations

• On natural justice: "There is no allegation made against the Learned Adjudicator that she had failed to accord procedural fairness to both parties at the Adjudication Proceedings... upon perusing through the AD, the Learned Adjudicator had deliberated on all the issues raised by Mayfair in opposing the Adjudication in her findings and reasons under all the subheadings."

• On jurisdiction for late payment interest: "Since there is no denial of delay in making the certified payments to Setiakon and resulting from that delay, interest had accrued by virtue of the COC and had become payable, it is my view that the Late Payment Interest claimed by Setiakon is 'payment' as defined in the CIPAA 2012. Paying only the principal amount and not the accrued interest would tantamount to non-payment for work done or service rendered under the construction contract by Mayfair."

• On non-appealability: "Even if the Adjudicator had answered all the right questions wrongly, it is not for this court to examine the merits of the Adjudicator’s findings and interfere in her decision. Whether the decision of the Adjudicator is acceptable or not to the parties, it cannot form the basis of an application to set aside the same."

• On interest imposition: "Since the Late Payment Interest is calculated till 10.11.2023, whilst the Adjudicator’s imposition of interest on the Adjudicated Sum commences from the date of the AD i.e. 16.4.2024 till full settlement of the sum, there is no such compound interest imposed as alleged by Mayfair."

Court's Decision

The High Court dismissed Mayfair's application to set aside the adjudication decision under Sections 15(b) and (d) of CIPAA 2012, finding no breach of natural justice or jurisdictional excess. It also dismissed the stay application under Section 16(1)(a) with no costs order. Setiakon's enforcement application under Section 28 was allowed, requiring Mayfair to pay the adjudicated sum of RM4,131,813.45, plus 5% interest from April 16, 2024, and net costs of RM90,300 within 14 working days. Mayfair was ordered to pay RM10,000 in total costs to Setiakon.

This decision reinforces CIPAA 2012's aim to expedite construction payments, limiting court interference to clear procedural or jurisdictional flaws. It clarifies that late payment interest qualifies for adjudication if tied to contract delays, potentially deterring payment withholdings. Future cases may see stricter scrutiny of unsubstantiated challenges, streamlining dispute resolution and ensuring contractors' cash flow, though Mayfair has appealed to the Court of Appeal.