Intisari Mulia Engineering Sdn Bhd v TUV SUD (Malaysia) Sdn Bhd [W-02(C)(A)-538-04/2023]
Introduction
Adjudication has been introduced as a mechanism to promptly resolve payment disputes in the construction industry. However, to initiate such a proceeding, certain legal requirements must be met, including the existence of a contract made in writing which is related to construction works. This case explains this requirement in detail, providing readers insights into the types of disputes that can be resolved through adjudication.
Parties
The Respondent (TUV) is a sub-contractor engaged by the Appellant (Intisari) in two projects. Under the arrangement between the parties, which is not governed by a written contract, Intisari was to claim TUV’s work done from the Main Contractors, namely Aker Solutions Malaysia Sdn Bhd and Air Products Malaysia Sdn Bhd with 95% of the claimed amount remitted to the TUV, while Intisari would retain 5% as its commission.
Facts
Intisari breached the payment arrangement agreed by the parties. When a payment dispute arose, TUV initiated an adjudication proceeding under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) against Intisari. The claim, which was based on documents such as purchase orders, invoices and correspondences, was allowed by the Learned Adjudicator. The High Court subsequently allowed TUV’s application to enforce the Adjudication Decision and dismissed Intisari’s application to set aside the Adjudication Decision, which led to the present appeal.
It is not disputed between the parties that there is no formal written contract entered between the parties. This was also acknowledged by the Learned Adjudicator and the High Court Judge. It is TUV’s position that there was exchange of correspondence, purchase order, invoices and partial payment between TUV and Intisari, all of which falls within Section 2 of CIPAA 2012
Issue
The main issue before the Court of Appeal was whether the Learned Adjudicator had jurisdiction to adjudicate the claim in the absence of a written construction contract between the parties.
Decision
The Court of Appeal answered the issue in the negative, and allowed the appeal. The Court held that to initiate an adjudication proceeding, the claimant must be able to prove (1) the existence of a construction contract made in writing; and (2) that the construction contract must relate to construction work carried out wholly or partly within Malaysia.
First element: As to what amounts to a construction contract made in writing, the court aligned with the wide interpretation adopted by various precedents, both locally and in other common law jurisdictions, which includes written documents that can demonstrate the existence of a construction contract between the parties. Accordingly, the purchase orders, invoices, and correspondences (“Documents”) in the present case were deemed to constitute a construction contract made in writing.
Second element: However, the Documents must be strictly interpreted to ensure they relate to construction work as described under Section 4 of the CIPAA 2012.
Upon perusal of the Documents, the Court of Appeal reached the conclusion that TUV had not adduced any evidence to show that the outstanding sums claimed in the Payment Claim against Intisari are based on a construction contract which relate to construction work(s) within the meaning of Section 4 of CIPAA 2012. Since the Document in the present case merely states what is being supplied but does not reveal and/or describe the nature of the work or reference the construction work for which the supplies are made, it was deemed not to relate to construction work.
As TUV has failed to discharge the burden of proving that the Documents, though may be considered as construction contract in writing, relate to construction work(s), the Court found that TUV had improperly procured the Adjudication Decision and the Learned Adjudicator had acted in excess of his jurisdiction.
Conclusion
Whilst a liberal approach has been taken by the judges in interpreting whether a document may be considered a construction contract made in writing, it is important for the unpaid party to ensure that the relevant document (which purportedly forms the contract between the parties) clearly states the nature of the work, which must relate to construction works.
About the authors
Felicia Lai Wai Kim
Senior Associate
Adjudication, Construction & Engineering Disputes
Harold & Lam Partnership
felicia@hlplawyers.com
Leong Yu Jing
Pupil-in-Chambers
Construction & Energy
Harold & Lam Partnership
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