Does a quotation constitute a construction contract under the CIPAA 2012?
By Karen Ng Yueh Ying, Partner, Messrs. Yatiswara, Ng & Chan
A contractor who wants to commence adjudication proceedings pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) must fulfil certain requirements under CIPAA 2012 before it could pursue its payment claim against its principal. Section 2 of CIPAA 2012 provides that the Act applies to every construction contract made in writing relating to construction work carried out wholly or partly within the territory of Malaysia including a construction contract entered into by the Government. Therefore, one of the requirements to be fulfilled is whether there is a construction contract made in writing between the parties.
Construction contract is defined in CIPAA 2012 as a construction work contract or construction consultancy contract. Construction work contract is further defined as a contract to carry out construction work whereas construction consultancy contract is defined as a contract to carry out consultancy services in relation to construction work and includes planning and feasibility study, architectural work, engineering, surveying, exterior and interior decoration, landscaping and project management services.
What then does construction contract made in writing mean? In this regard, the Asian International Arbitration Centre (“the AIAC”) has issued a circular on this point which provided the following definition:
‘construction contract in writing’
“1. There is a contract in writing:-
- if the contract is made in writing (whether or not it is signed by the parties);
- if the contract is made by exchange of communications in writing;
- if the contract is evidenced in writing.
2. Where parties agree otherwise than in writing by reference to terms which are in writing, they make a contract in writing;
3. A contract is evidenced in writing if a contract made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the contract.”
While the abovesaid circular by the AIAC is not binding, the definition therein, which is widely accepted to be correct, provides clarity on this point. Hence, it is clear that a formal contract is not required to be executed by the parties before a contractor could issue a Payment Claim under the CIPAA 2012 for the payment disputes.
Question: Does a quotation constitute a construction contract in writing under the CIPAA 2012?
The Court in the case of Ong Teik Beng (berniaga sebagai MJVConstruction) v Wow Hotel Sdn Bhd and another case [2021] MLJU 1672 had the opportunity to discuss this issue.
In this case, the plaintiff filed an application for an order to enforce an adjudication decision which was made in its favour. The defendant applied to the same Court for an order to stay the adjudication decision and an order to set aside the adjudication decision on the grounds that there is a breach of natural justice and that the adjudicator acted in excess of his jurisdiction.
The background facts of the said case are as follows. The plaintiff was appointed by the defendant as its contractor to carry out renovation works on four floors of a building in Penang. There was no formal agreement executed by the parties. Instead, the works were carried out based on a work quotation issued by the plaintiff. Payments were then made by the defendant to the plaintiff pursuant to invoices issued by the plaintiff for works done. The plaintiff subsequently commenced adjudication proceedings under the CIPAA 2012 against the defendant as a result of the failure by the defendant to make payments on certain invoices from the plaintiff that were issued for works done by it.
One of the arguments advanced by the defendant was that there was no construction contract within the meaning of CIPAA 2012. It was argued that the quotation relied by the plaintiff has not been mutually agreed by the parties and that therefore there was no written agreement between the parties. The defendant also argued that the record between the parties was not a complete agreement.
The Judge in this case did not agree with the defendant’s arguments. The Judge was of the view that the defendant’s contention was untenable as it did not accord with the reality of things in the ordinary course of business. The Judge found that the quotation had identified in detail the works that were to be carried out, i.e. “renovation” works. The existence of the quotation was not in dispute and it was irrelevant that the defendant did not countersign the quotation. His Lordship also found that the facts showed that the plaintiff did the works and part payments were made on invoices issued based on the said quotation. The Judge held, in line with other decided cases, that the words “contract in writing” should be accorded a liberal meaning and should not be restricted to a “formal contract”.
In conclusion, the Court in interpreting whether there is “construction contract in writing” in existence will take a liberal approach rather than a stringent approach. Therefore, a quotation, although not countersigned, may satisfy the requirement for a “construction contract in writing” under the CIPAA 2012.