The Court of Appeal in Tera Va Sdn Bhd v Ayam Bintang Istimewa Sdn.Bhd. [2024] MLJU 2408 examined a number of issues in relation to a counterclaim in adjudication proceedings specifically governed by the Construction Industry Payment and Adjudication Act 2012 (CIPAA).
Facts
The appellant (Tera Va- TV) and respondent (Ayam Bintang Istimewa- ABI) in this appeal were respectively the claimant and respondent in the adjudication proceedings.
ABI appointed TV to supply, deliver and install a Solar Photovoltaic Solution at ABI’s premise. After TV completed the work, ABI refused to pay TVA a sum of RM294,750. On 16.12.2022, TV issued its payment claim under the CIPAA against ABI. ABI’s response was that TV had caused structural damage to the zinc roof panels measuring 20,565 square feet at its premise during the installation of the solar panels. Accordingly, in its adjudication response dated 12.5.2023, ABI made a set off against the sum it owed to TV and filed a counterclaim against TV for the balance of the cost to replace the damaged roofing.
The adjudicator allowed TV’s claim against ABI but at the same time, the adjuciator also partially allowed ABI’s counterclaim up to RM302,580, being the cost to make good the structural damage to the zinc roof panels. TV, being the claimant in the adjudication proceedings, ended up having to pay ABI RM7,830. Subsequently, TV filed its application to set aside the adjudication decision and ABI filed its application to enforce the same. The High Court dismissed the former but allowed the latter. Being aggrieved, TV filed an appeal to the Court of Appeal.
Proccedings At The Court Of Appeal
TV’s setting aside application was premised upon two grounds - fraud and denial of natural justice by the adjudicator under Sections 15(a) and (b) of the CIPAA. TV alleged that ABI committed fraud by concealing that ABI was not the owner of the premise but merely a tenant, misrepresenting to the adjudicator that it had incurred out-of-pocket expenses to repair the roof while the repair had not taken place and misrepresenting to the adjudicator the area of the damaged roof. The allegation of denial of natural justice, meanwhile, hinged upon the accusation that the adjudicator decided on three issues not raised by the parties.
Upon reviewing the appeal records and scrutinising the facts, the Court of Appeal was not satisfied that the allegations of fraud and denial of natural justice had been established. Instead, the Court of Appeal directed both parties to submit on the legality of the crossclaim made by ABI.
A Crossclaim Exceeding The Amount Claimed
The Court of Appeal examined whether a respondent may make a crossclaim in an adjudication proceedings that exceed the claimant’s claim. The court accepted the reasoning by the High Court in Mudajaya Corporation Bhd v KWSL Builders Sdn Bhd & other cases [2022] MLJU 1931 that a crossclaim made under the CIPAA can only zerorise a claim but cannot exceed it, for the following reasons:
1.Section 6(2) of the CIPAA only allows a respondent to dispute “wholly” the claim in adjudication proceedings.
2.In its payment response, a respondent can, therefore, only seek to wholly dispute the claim.
3.In this scenario, reading Sections 6 and 27(1) of the CIPAA together, an adjudicator’s jurisdiction is “limited” to matters referred to adjudication by the respondent in the payment response.
4.In other words, the adjudicator’s jurisdiction is limited to a crossclaim that wholly disputes the claim. Wholly disputing a claim means, at most, that the claim should not be paid. Wholly disputing a claim does not go as far as asking the claimant to pay the respondent.
5.Further, Section 10(1) of the CIPAA only allows a respondent to serve an adjudication response which “shall answer” an adjudication claim. Answering a claim means, at most, that the claim should not be paid. Answering a claim does not go as far as asking the claimant to pay the respondent.
6.Further, it is not the purpose of the CIPAA to enable parties to claim damages and turn adjudication proceedings protracted and costly.
Outcome
The Court of Appeal held that a crossclaim could not exceed a claim in adjudication proceedings. Thus, when the adjudicator allowed the crossclaim and ordered TV to pay ABI a sum of RM7,830, that part of the adjudicator’s decision was made in excess of the adjudicator's jurisdiction.
Interestingly, the Court of Appeal was of the opinion that given that the issue of excess of jurisdiction was not pleaded nor relied upon by TV to set aside the adjudicator’s decision, the same could not be relied upon by the court to allow the appeal. Instead, the grounds of setting aside relied upon by TV were merely fraud and breach of natural justice that were not made out. The Court of Appeal, consequently, dismissed TV’s appeal.
Question arises whether the Court of Appeal had erred in refusing to allow the appeal and set aside the part of the adjudicator’s decision that ordered TV to pay ABI RM7,830. It can hardly be disputed that an order made in excess of the decision maker’s jurisdiction is an illegal order or decision and a nullity to begin with. For instance, the Federal Court in Ann Joo Steel Bhd v Pengarah Tanah dan Galian Negeri Pulau Pinang & Anor and another appeal [2020] 1 MLJ 689 held that a court can take judicial notice of and act on an ex facie illegality or a nullity, as what is illegal, null and void cannot be turned legal by consent or waiver of the parties. Any illegality and nullity is a question of law that is incapable of being modified by parties, and the court must not, as a matter of public policy, enforce an illegal decision.
Be that as it may, the decision of the Court of Appeal remains the law for the time being until another ruling on this point by the Court of Appeal or the apex court.
5 November 2024