Restricted from counterclaiming based on adjudication decision?

Our Foo Joon Liang and Tasha Lim Yi Chien explore whether parties are restricted from counterclaiming based on the adjudication decision awarded against them.

Introduction

It is common for parties to refer their construction disputes to adjudication under the Construction Industry Payment and Adjudication Act 2012 (CIPAA). However, in a situation where one half of the main contractor has had an adjudication decision awarded against them, can they counterclaim for the adjudication decision sums through the courts?

This was explored in NTN Asia Builder Sdn Bhd v Sinohydro Corporation (M) Sdn Bhd & Anor (NTN Asia).(1)

Facts

On 26 May 2016, the first and second defendant, Sinohydro Corporation (M) Sdn Bhd and Temasek Land Sdn Bhd formed a consortium known as Sinohydro-Temasek Consortium (the consortium). On 24 June 2016, NCT Building and Civil Engineering Sdn Bhd (the employer) appointed the consortium as the main contractor for the main contract works (the main contract works). After the abandonment of works by the appointed first subcontractor to undertake the main contract works, the plaintiff was later appointed by a letter of award dated 11 January 2018 to complete a specified portion of the building work for two apartment blocks of the project.

On 15 January 2018, the plaintiff commenced work and submitted three interim progress claims. However, the consortium did not certify any of the progress claims and did not make any payment to the plaintiff.

Without the plaintiff’s knowledge, the employer served a notice of default on 27 March 2018 to the consortium. The consortium had 14 days to remedy the defaults of failure to proceed regularly and diligently with works and failure to comply with architect instructions, after which the main contract would be determined.

On 17 April 2018, the employer took the position that the consortium had failed to remedy the defaults and proceeded to terminate the main contract. The plaintiff was thereafter orally informed of the termination and asked to vacate the site immediately. No letter or notice of termination was issued to the plaintiff.

Aggrieved by the non-payment despite its letters to the first defendant and the consortium, the plaintiff commenced a court action against the first defendant and second defendant claiming joint and several liability against them.

Decision

While the plaintiff commenced the court action against the first defendant and second defendant, the first defendant had commenced adjudication proceedings (the adjudication) under the CIPAA. An adjudication decision was given against the first defendant (the adjudication decision).

In the court action, the first defendant had, among other things, pleaded for the sum of 13,329,166.50 Malaysian ringgit. The first defendant was found liable to pay this amount to the employer in the adjudication. They now claimed the sum as special damages. The first defendant’s witness had also testified that the basis of this counterclaim was the adjudication decision.

In deciding on the said special damages, the court held that, pursuant to section 13 of the CIPAA, there is room for the same dispute dealt with in the adjudication to be redetermined by a court of law or arbitration. Such a redetermination would unshackle or unfetter the findings of the adjudicator in the adjudication decision.

Further, the court held that a redetermination would involve the provisions of the Evidence Act 1950, which is inapplicable in the adjudication as stipulated under section 12(9) of the CIPAA.

The court also took cognisance of the fact that the adjudication decision was made for the first defendant and the employer, and, therefore, the plaintiff was not a party to it.

Ultimately, the court held that as the adjudication decision was not a judgment, it could not be admissible in evidence. The adjudication decision was tantamount to an opinion. The fact that the adjudication decision was not one which concerned the plaintiff made it naturally inadmissible and irrelevant.

The court ultimately entered judgment against the first and second defendant and dismissed the first defendant’s counterclaim.

Comment

NTN Asia has clarified the position where the basis of the counterclaim was an adjudication decision which did not concern the parties in dispute. However, there is more to be explored in this regard.

Notwithstanding the fact that the adjudication decision relied upon by the first defendant was one that did not involve the plaintiff, it is unclear whether an adjudication decision that involves the same parties in dispute and which has been enforced as if it is a judgment or order of the High Court would suffer the same fate as the adjudication decision in NTN Asia. Such a scenario was not discussed in the grounds of the judgment.

Further, despite the interim nature of an adjudication decision, the winding-up courts have granted a winding-up petition based on a debt originating from an adjudication decision and have held that a successful party in an adjudication can file a winding-up petition against the party that fails or neglects to pay the adjudicated sum.(2) The winding-up courts have also refused injunctions of winding-up petitions that are premised on adjudication decisions.(3) This is especially so if the adjudication decision is not set aside.

With that in mind, if there was an adjudication decision that concerned the first defendant and the plaintiff that was neither set aside nor enforced, would either party be able to rely on the adjudication decision in its court or arbitration proceedings? Practitioners are looking forward to following the development of the CIPAA and adjudications in the construction industry.

For further information on this topic please contact Foo Joon Liang or Tasha Lim Yi Chien at Gan Partnership by telephone (+603 7931 7060) or email (joonliang@ganlaw.my or tasha@ganlaw.my). The Gan Partnership website can be accessed at www.ganlaw.my.

Endnotes

(1) [2021] MLJU 2563.

(2) Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244

(3) Sime Darby Energy Solution Sdn Bhd (sebelum ini dikenali sebagai Sime Darby Offshore Engineering Sdn Bhd) v RZH Setia Jaya Sdn Bhd [2021] MLJU 1494

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