Initiative may not be a good thing

by Chan Kheng Hoe, Head of Construction Law, Chong + Kheng Hoe

One would imagine that demonstrating initiative is a good virtue. However, the same may not be the case if the person showing initiative happens to be the adjudicator.

In Cescon Engineers Sdn Bhd v Pesat Bumi Sdn Bhd and anor, Pesat Bumi Sdn Bhd (“PBSB”) appointed Cescon Engineers Sdn Bhd (“CESB”) as consultants, whilst Geo Hill Sdn Bhd (“GHSB”) was the appointed contractor. CESB was supposed to be paid based on a percentage of the construction cost.

A dispute arose because it was alleged that CESB was shortchanged due to the construction cost being artificially depressed.

In adjudication, the adjudicator on his own initiative carried out a companies search and discovered that the directors and shareholders of GHSB and PBSB are in fact related, being biological brothers. Such being the case, the adjudicator found that the transaction was not carried out on an arms length basis. At no point did the adjudicator highlight the company search results as well as his conclusions drawn from the said results to the parties involved.

At the High Court, PBSB applied to set aside the adjudication decision on account of breach of natural justice. The adjudicator is said to have breached natural justice when he carried out the company search on his own accord and drew his own conclusions without allowing parties to respond to the same. In any event, PBSB alleged that the information from the companies search was in fact inaccurate.

The learned High Court Judge agreed that the conduct of the adjudicator in this present instance was a breach of natural justice and set aside the adjudication decision. Clearly, adjudicators ought to always bear in mind the need to confine themselves to the case presented, and if at all adjudicators wish to enquire further, then all opportunity must be afforded to the parties to respond to the new line of enquiry.

Being inquisitorial (which  is allowed under the Construction Industry Payment and Adjudication Act 2012) means that adjudicators must in fact make inquiry, and not carry out their own private inquiry away from the heat of debate by parties.