Case Review: Intisari Mulia Engineering Sdn Bhd v TUV SUD (Malaysia) Sdn Bhd [2024] MLJU 3053

 

Background

In Intisari Mulia Engineering Sdn Bhd v TUV SUD (Malaysia) Sdn Bhd [2024] MLJU 3053, the Court of Appeal interpreted the meaning of “ construction contract made in writing relating to construction work ” pursuant to section 2 of the Construction Industry Payment and Adjudication Act 2012 (“ CIPAA 2012 ”).

Aker Solutions Malaysia Sdn Bhd (“ Main Contractor 1 ”) appointed TUV SUD (Malaysia) Sdn Bhd (“ TUV ”) for the “supply of manpower, equipment & consumables for NDT Inspection Services for Aker Solutions (M) Sdn Bhd at PFKZ Port Klang, Selangor” (“ Project 1 ”). TUV appointed Intisari Mulia Engineering Sdn Bhd (“ Intisari ”) as its subcontractor for Project 1.

Similarly, Air Products Malaysia Sdn Bhd (“ Main Contractor 2 ”) appointed TUV for the “supply of manpower & equipment UTTG & MPI for Air Products Malaysia Sdn Bhd” (“ Project 2 ”). TUV also appointed Intisari as its subcontractor for Project 2.

 

Adjudication

The contracts between TUV and Intisari for the respective projects were purportedly founded on several Purchase Orders for each project. TUV issued several invoices to Intisari but did not receive full payments for the same. Consequently, TUV issued a Payment Claim for the alleged outstanding sum of RM1,703,148.97. Intisari did not submit a Payment Response.

TUV issued a Notice of Adjudication. The Parties’ solicitors and the Asian International Arbitration Centre (“ AIAC ”) exchanged correspondences on the issue of whether section 2 of the CIPAA 2012, which requires the existence of a “ construction contract made in writing relating to construction work ”, was fulfilled. The AIAC communicated its concerns with registering the adjudication, particularly on the issue of the applicability of the CIPAA 2012 to the dispute as the documents furnished suggest that there may not be a written agreement between the Parties. The AIAC put TUV on notice that should TUV decide to proceed with the adjudication, it would be at their own risk.

TUV confirmed its intention to proceed with the registration of the adjudication and to leave the issue of whether the claim falls within the ambit of the CIPAA 2012 to the learned Adjudicator. The learned Adjudicator was reminded by the AIAC that there was no written agreement between the Parties. Notwithstanding that, the learned Adjudicator proceeded to accept the appointment for the adjudication.

Intisari raised an objection and took the position that section 2 of the CIPAA 2012 was not fulfilled and there was no agreement in writing. Intisari did not submit an Adjudication Response. Notwithstanding that, the Adjudication proceeded. On 10 June 2022, the learned Adjudicator delivered the Adjudication Decision dated 27 May 2022 in favour of TUV. The learned Adjudicator found that TUV’s claims against Intisari were based on two purchase orders and other supporting documents such as invoices, which created two separate contracts in writing between the Parties.

 

High Court

TUV filed an application to enforce the Adjudication Decision. Conversely, Intisari filed an application to set aside the Adjudication Decision on the grounds that the Adjudication Decision was improperly procured pursuant to section 15(b), section 15(c) and section 15(d) of the CIPAA 2012:

“15. An aggrieved party may apply to the High Court to set aside an adjudication decision on one or more of the following grounds:

(a)   …

(b)   there has been a denial of natural justice;

(c)  the adjudicator has not acted independently or impartially; or

(d)  the adjudicator has acted in excess of his jurisdiction.”

The High Court dismissed Intisari’s setting aside application and allowed TUV’s enforcement application.

 

Court of Appeal

Intisari appealed against the High Court’s decisions on both the setting aside application and the enforcement application based on the following issues:

(1)   whether the learned High Court Judge erred in fact and/or in law in failing to consider that the learned Adjudicator does not have jurisdiction to adjudicate the claim where no written contract has been entered into between the Parties;

(2)   whether the learned High Court Judge erred in fact and/or in law by taking into consideration AIAC’s CIPAA Circular 03 in her decision;

(3)  whether the learned High Court Judge erred in fact and/or in law in failing to consider that there is no due date pleaded in the Payment Claim and the learned Adjudicator breached section 15(3) of the CIPAA 2012; and

(4)  whether the learned High Court Judge erred by not taking into consideration all the objections raised by Intisari with regards to the lack of jurisdiction on the part of the learned Adjudicator to hear and/or to proceed with the proceedings, and by not considering Intisari’s comments on the Statement of Account filed by TUV.

The key issue identified by the Court of Appeal was whether the learned Adjudicator had jurisdiction to adjudicate and later decide on the Adjudication Claim filed by TUV where there was no formal contract in writing entered into by the Parties.

 

Applicability of the CIPAA 2012

In order to submit a Payment Claim, a claimant must first establish the existence of a construction contract pursuant to section 2 of the CIPAA 2012. The two pertinent elements of section 2 of the CIPAA 2012 are as follows:

(1)     there is a construction contract made in writing ; and

(2)     the construction contract must relate to construction work carried out wholly or partly within the territory of Malaysia.

 

Limb (1): “Construction Contract Made in Writing”

The Court of Appeal held that “construction contract made in writing” simply means a construction contract created either in typewriting (or even handwritten), printing, lithography, photography, electronic storage or transmission or any other method or recording information or fixing information in a form capable of being preserved.

In interpreting the phrase of the statute, the Courts must promote and not stifle the object or intent of the legislation. The purpose of the CIPAA 2012 is for the speedy resolution of payment disputes in the construction industry.

The Court of Appeal stated that a “construction contract made in writing” should be construed widely to include written correspondences between parties in relation to a construction contract. An expansive, generous and liberal interpretation should be given to the phrase “construction contract made in writing”, which could include contemporaneous documents such as written correspondences, purchase orders and invoices.

 

AIAC’s CIPAA Circular 03

The Court of Appeal found that the AIAC’s circular is a useful guideline in interpreting section 2 of the CIPAA 2012. However, the AIAC’s circulars are administrative and/or advisory in nature. These circulars are not subsidiary legislation. Therefore, the AIAC’s Circular 03 does not have a legal binding effect. It merely serves as a guideline.

 

Limb (2): “Construction Work”

The Court of Appeal held that the contemporaneous documents and/or conduct of parties relied on must be scrutinised and strictly interpreted to ensure that it relates to “construction work”.

A claimant must prove that the work done stated in a Payment Claim is a related “construction work” as defined under section 4 of the CIPAA 2012 that is, “ construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition of—

(a) any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below ground level;

(b) any road, harbour works, railway, cableway, canal or aerodrome;

(c) any drainage, irrigation or river control work;

(d) any electrical, mechanical, water, gas, oil, petrochemical or telecommunication work; or

(e) any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work,

and includes —

(A) any work which forms an integral part of, or are preparatory to or temporary for the works described in paragraphs (a) to (e), including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping; and

(B)  procurement of construction materials, equipment or workers, as necessarily required for any works described in paragraphs (a) to (e).”

In terms of Project 1, the contract was for the supply of manpower, equipment and consumables for NDT inspection Services for Aker Solutions (M) Sdn Bhd. There was no mention of the nature of works for Project 1 in the appeal record. Notwithstanding that, the Court of Appeal noted that “NDT” refers to Non-Destructive Testing, which is a form of material/component testing which does not involve any form of destruction, damage or alter to a structure. The learned Adjudicator did not address the question of whether the NDT inspection services involved “construction work” which would fall within the purview of the CIPAA 2012.

In terms of Project 2, the contract was for the supply of manpower and equipment UTTG and MPI to Air Products Malaysia Sdn Bhd. “UTTG” refers to Ultrasonic Thickness Gauge and “MPI” refers to Magnetic Particle Inspection. Both UTTG and MPI are methods in Non-Destructive Testing. TUV did not provide any further evidence to show that the supply of manpower and equipment for Project 2 was related to “construction work”.

The Court of Appeal held that the learned Adjudicator had acted in excess of jurisdiction. The evidence before the Court did not describe the nature of “construction work” in the purported contracts between TUV and Intisari.

The Court of Appeal further recognised that an adjudicator may draw from his own knowledge to acknowledge the nature of work. However, an adjudicator cannot make presumptions or guesses when determining a question of fact that is not before him. An adjudicator must be certain of all material facts to ensure that he has jurisdiction to hear and decide a claim.

Further, it is highlighted that any matters involving an adjudicator’s jurisdiction can be raised at any time, including during the adjudication proceedings itself, in the enforcement or setting aside applications in the High Court or before the appellate courts.

 

Conclusion

Based on the above, Intisari’s appeal was allowed, and the High Court’s orders on the setting aside application and the enforcement application were set aside.

The expansive interpretation of section 2 of the CIPAA 2012 is in consonance with the CIPAA 2012’s primary aim to ensure the speedy resolution of payment disputes in the construction industry. Construction contracts can be founded based on contemporaneous documents to fall within the purview of the CIPAA 2012 regime. However, these contemporaneous documents must be carefully scrutinised on their involvement with construction work.

Further, adjudicators should be cautious when determining questions of fact which are not put before them. While section 25(d) of the CIPAA 2012 allows adjudicators to draw from their own knowledge and expertise, adjudicators must ascertain all material facts to ensure that they are clothed with jurisdiction to determine the dispute.