Commentary on Uzma Engineering Sdn Bhd v Khan Co., Ltd

Summary

The High Court in a recent decision, Uzma Engineering Sdn Bhd v Khan Co., Ltd. dated 26th August 2020 (unreported), set aside an adjudication decision on the grounds that the Main Contractor’s agreement to pay the Subcontractor per se does not fall under the definition of a “construction contract” under Section 4 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”). The High Court held that the “construction contract” in Section 4 of CIPAA 2012 must relate to “construction work” as defined in the same Section. The High Court distinguished the Court of Appeal decision in Martego Sdn Bhd v Arkitek Meor & Chiew Sdn Bhd and another appeal [2018] 2 CLJ 163 which adopted a wide definition of “construction contract” under Section 4 of CIPAA 2012.

 

Background

Petronas Carigali Sdn Bhd (“Petronas”) appointed THHE Fabricators Sdn Bhd (“THHE”) as a contractor for a gas development project. Uzma Engineering Sdn Bhd (“Uzma”) and Khan Co., Ltd (“Khan”) collaborated to bid for part of the project works from THHE.

Uzma was eventually appointed by THHE as its subcontractor. In turn, Uzma appointed Khan as one of its sub-sub-contractor. The scope of Khan’s ‘works’ under the contract between Uzma and Khan (“the Contract”) was only for Khan to pay THHE the amounts already paid by THHE for the purchase of various materials for the Project.

Khan commenced adjudication proceedings under CIPAA 2012 against Uzma for sums allegedly due under the Contract.

 

Decision

The High Court held that CIPAA 2012 only applies when the following four requirements are satisfied cumulatively:

  1. there is a “construction contract” between a claimant and respondent;
  2. the “construction contract” is made in writing;
  3. the “construction contract” relates to “construction work”; and
  4. the “construction work” is carried out wholly or partly within the territory in Malaysia.

In determining whether the 3rd requirement is satisfied, the High Court held that the court may consider the terms of the contract in question and extrinsic evidence. It held that the court is not bound by the name, title, label or description given by the contracting parties to the “construction contract” in question nor is the court bound by the express terms of the “construction contract”.

The High Court found that Khan failed to satisfy the 3rd requirement. It held that Khan’s claim against Uzma under the Contract only concerned Uzma’s agreement to pay Khan the payment which Khan made to THHE plus a 5% mark-up and did not relate to “construction work” within the meaning of Section 4 of CIPAA 2012.

The High Court also distinguished the Court of Appeal decision in Martego Sdn Bhd v Arkitek Meor & Chiew Sdn Bhd and another appeal [2018] 2 CLJ 163, which adopted a wide definition of “construction contract” under Section 4 of CIPAA 2012. The High Court held that the “construction contract” in Martego has no provision which is similar to Clause 1 of the Letter of Award between Uzma and Khan and there is no extrinsic evidence in Martego to show that there is no “construction work”.

 

Commentary

The key implication from the High Court’s decision is that despite the wide definition of “construction contract” adopted by the Court of Appeal in Martego Sdn Bhd v Arkitek Meor & Chiew Sdn Bhd and another appeal [2018] 2 CLJ 163, the court must still adopt the usual principles when interpreting a contract. This means that the court is not confined to the four corners of the document and is entitled to look at the factual matrix forming the background to the transaction in deciding whether the contract in question is a “construction contract” which relates to “construction work”. The court is also not bound by the name, title, label or description given by the contracting parties to the contract in question.

 

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By Kenny Chan Yew Hoong (view profile)
Partner, Azman Davidson & Co (Adjudication, Arbitration, Construction Law & General Litigation)
+603 2164 0200 (ext no. 153)
kenny.chan@azmandavidson.com.my

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