Winning the Adjudication Is Only Half the Battle

The Brief Facts of VKPT

The dispute arose from a sub-subcontract between VKPT Sdn Bhd (“VKPT”) and LLC Infra Sdn Bhd (“LLC Infra”) for trackwork and power conductor rail installation works in connection with the LRT3 project.

After the sub-subcontract was terminated, VKPT commenced adjudication proceedings against LLC Infra under CIPAA.

The interesting thing here is that LLC Infra did not actually “win” a payment claim.

Instead, VKPT’s entire claim was dismissed, and LLC Infra was awarded RM98,300.00 in adjudication costs. Crucially, LLC Infra did not register the adjudication decision under Section 28 of CIPAA. Nevertheless, it issued a statutory demand against VKPT and subsequently obtained a winding-up order against VKPT.

And therein lay the problem. LLC Infra had an adjudication decision. But it did not have a High Court judgment. Does this distinction matter?

The short answer is: Yes.

“Binding” Does Not Necessarily Mean “Indisputable”

The Court held that registration under Section 28 of CIPAA is not required before a winding-up petition can be presented. Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244 remains good law on that point².

But the Court of Appeal drew a critical distinction between two questions:

1. Can you present the petition?
2. Once the petition is presented, can the debtor still dispute the debt?

Before registration, the adjudication decision is temporarily final and binding, but it does not have the status of a judgment. After registration, it becomes enforceable as if it were a judgment of the High Court, and the adjudicated sum takes on the character of a judgment debt.

The Court described registration under Section 28 as the “watershed” between these two positions: before registration, the adjudicated debt may still be subject to genuine and substantial dispute; after registration, the adjudication decision has the status and enforceability of a judgment debt³.

The Turning Point: Has the Adjudication Decision Been Registered?

Taking the Dispute Beyond Adjudication

If an unregistered adjudication decision remains disputable, the next question is: what would amount to a genuine dispute on substantial grounds?

In VKPT, after the winding-up petition was presented, VKPT commenced High Court proceedings for the final determination of the underlying construction disputes which had been the subject of the adjudication.

This brought into focus an important feature of CIPAA: an adjudication decision may be binding, but it is not necessarily final in respect of the underlying dispute. Section 13(c) of CIPAA expressly preserves the parties’ right to have the dispute finally determined by the court or through arbitration. It is this right which gives an adjudication decision its temporal finality, rather than permanently conclusive, character.

The Court of Appeal held that the commencement of court proceedings or arbitration for the final determination of the underlying dispute would ordinarily be sufficient to establish a genuine and substantial ground for disputing an unregistered adjudication decision.

There is, however, an important qualification. A debtor cannot simply commence proceedings at the eleventh hour and assert, “the debt is disputed.”

The winding-up court may examine whether those proceedings are genuine or merely a tactic to defeat the winding-up petition. Relevant considerations include:

1. The timing of the proceedings;
2. The parties’ prior conduct;
3. Whether the claims merely repeat those already dismissed in the adjudication without any new basis or evidence; and
4. Whether there is a genuine intention to pursue the proceedings to their conclusion.

In VKPT, although the High Court proceedings were commenced shortly before the hearing of the winding-up petition, the Court of Appeal held that the timing alone was insufficient to establish that the proceedings had been commenced mala fide, particularly as VKPT had already indicated its intention to challenge the Adjudication Decision⁴.