Res Judicata & Declarations relating to a CIPAA Adjudication
Tasha Lim Yi Chien
Introduction
When an adjudicator had only allowed a portion of the set-off claim in an earlier adjudication, can the next adjudicator allow for the remainder of the set-off claim in a subsequent adjudication? Further, in seeking to set aside an adjudication decision, can a party seek for declaratory reliefs against third parties? The High Court in Malaysia recently decided on these issues in Meridian Contracts Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2023] MLJU 1047.
Facts
The Plaintiff was a sub-contractor employed by the Defendant to carry out the Basement Carcass Works for a construction project.
In 2019, the Plaintiff commenced the 1st adjudication against the Defendant for a sum of RM7,494,014.17 which consisted of the progress claim no.26 (penultimate) and 1st moiety retention sum, less the payments received. Meanwhile, the Defendant had disputed the claim and stated that there was a set-off of RM5,188,402.91. On 31.10.2019, the 1st adjudicator delivered the 1st adjudication decision and decided that the Defendant shall pay the sum of RM5,311,360.51 to the Plaintiff (“1st AD”). The 1st adjudicator had allowed a sum of RM142,238.60 out of the Defendant’s set-off claim.
On 13.12.2019, the Defendant issued a notice to arbitrate, and the arbitrator was later appointed on 05.03.2020. In the meantime, the 1st AD had been enforced as a judgment of the high court on 04.05.2020.
Thereafter, the Defendant issued the Certificate of Making Good Defects (“CMGD”) to the Plaintiff. This was then followed by a payment claim from the Plaintiff seeking release of the 2nd moiety retention sum of RM1,088,420.35. The Defendant asserted in its payment response that it was entitled to set-off and/or cross claim the sum of RM5,188,402.91 which included a sum of RM3,913,000.00 for liquidated ascertained damages (“LAD”). The Plaintiff, by way of a notice of adjudication dated 01.04.2021 commenced the 2nd adjudication (“2nd Adjudication”).
On 15.11.2021, the 2nd Adjudicator determined that the Defendant’s set-off for the LAD is allowed and dismissed the Plaintiff’s claim for the 2nd moiety retention sum (“2nd AD”).
Issues before the High Court (HC)
The Plaintiff applied to the HC to set aside the 2nd AD and sought for the following declarations:
- That the Plaintiff be entitled to re-commence adjudication proceedings from the Notice of Adjudication dated 01.04.2021;
- That the newly appointed adjudicator shall deliver the decision based on the payment claim, payment response, adjudication claim, adjudication response, and adjudication reply submitted in the 2nd Adjudication; and
- That the learned Adjudicator for the 2nd Adjudicator shall refund all payments and fees made to him in the 2nd
The issue before the HC was summarized into one question – Whether the 2nd Adjudicator had acted in excess of his jurisdiction by:
- Making findings as to the merit of the 1st AD which had fully adjudicated the Defendant’s set-off of RM5,188,402.91; and
- Making a decision that contradicted the findings of the 1st AD that had been enforced as a judgment or order of the HC and affirmed by the Court of Appeal (CA).
Decision of the HC
Res Judicata
The HC found that the 2nd Adjudicator had acted in excess of his jurisdiction by deciding on the Defendant’s entitlement to the LAD which effectively rendered the Plaintiff’s claim in the 2nd Adjudication to be dismissed in toto. The Defendant’s set-off (including the LAD) raised in the 2nd Adjudication must be accepted as having been decided on its merits by the 1st Adjudicator.
Furthermore, the Court of Appeal (CA) had put to rest the dispute regarding the 1st AD given that the appeal against the 1st AD has been dismissed. The HC noted that the 2nd Adjudicator did not allude to this fact in his decision despite having been addressed by both the Plaintiff and Defendant in the Adjudication Claim and Adjudication Response respectively. Thus, the decision in the 1st AD is final as between the parties for purposes of adjudication proceedings under the CIPAA until the dispute is definitively decided by the arbitral tribunal.
Declarations
The HC had accepted the Defendant’s submissions and dismissed the Plaintiff’s application for declaratory reliefs.
First, the declaratory reliefs sought for by the Plaintiff involves third parties such as the Director of the Asian International Arbitration Centre (AIAC), the to-be appointed adjudicator, and the 2nd Adjudicator. Section 42 of the Specific Relief Act 1950 provides that a declaration is only binding upon parties to the suit.
Second, by the declaratory reliefs sought for, the Plaintiff is attempting to by-pass Section 34(1) of CIPAA which provides for immunity of the adjudication and AIAC. The acts sought for are not statutorily provided under the CIPAA and are not expressly provided for in CIPAA.
Lastly, Section 19(5) of CIPAA specifies only one scenario where an adjudicator would not be entitled to his fees i.e., when he fails to make a decision within the period set out in Section 12(2) of CIPAA. Thus, a refund of his fees in any other scenario would not be allowed.
Comments
In this particular case, the 1st Adjudicator had made a determination on the set-off claim of RM5,188,402.91 in the 1st AD by allowing a portion of the claim. However, if the 1st Adjudicator had refused to decide on the set-off claim due to an issue of jurisdiction or decided not to allow any amount claimed as set-off, would a defendant be bound to the decision of the 1st Adjudicator in a subsequent adjudication? In so doing, would the defendant’s hands be fairly tied?
This case also serves as a reminder to adjudicators to take extra precaution in their adjudication decisions to mention any notable or significant facts. In this case, the decision of the CA was significant. Had the Adjudicator made reference to the decision of the CA and provided his reasons for doing so, perhaps the HC would not have set aside the 2nd AD as it would have arguably been a finding of fact by the 2nd Adjudicator.