Case Commentary – Uzma Engineering Sdn Bhd v Khan Co Ltd and Another Summons

Sep 21, 2020



26 August 2020

AdjudicationDispute resolution – The Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’) – Enforcement of adjudication decision –Setting aside – Application to set aside decision of adjudicator – whether the adjudicator had exceeded her jurisdiction under s 15(d) of the CIPAA – s 2 of the CIPAA – s 4 of the CIPAA –  s 91 and 92 of the Evidence Act – s 26 of the Contracts Act – whether there was a breach of natural justice pursuant to s 15(b) of the CIPAA – whether the court should exercise its discretion under section 16(1)(b) and (2) CIPAA to stay the Adjudication Decision pending the disposal of the main suit – unconditional stay – conditional stay

Brief Background Facts

On 15.5.2014, Petronas Carigali Sdn Bhd (“Petronas”) appointed THHE Fabricators Sdn Bhd (THHE) as the main contractor for a gas development project (Project). KHAN is a South Korean company which collaborated with UZMA to bid for relevant sub-contract. On 25.5.2016, by a letter of award, THHE appointed UZMA as its sub-contractor for the Project. KHAN incorporated a Malaysian company, Kong Offshore Malaysia Sdn Bhd (“Kong”) where Kong is Khan’s operating arm in Malaysia.

By a letter of award, UZMA awarded to KHAN a sub-contract regarding the Project LA (UZMA & Khan). They had signed an undated ‘Sub-Contract Agreement’. On 25.8.2016, Khan sent an email to UZMA which forwarded a Pro Forma Invoice for the total sum of US$2,621,939,54, consisting of US$2,497,085.28 (THHE’s invoice) and US$124,854.26 (5% mark-up).

On 30.8.2016, UZMA approved Khan’s Pro Forma Invoice through an email. Consequently, KHAN sent an email dated 30.8.2016 to UZMA which forwarded KHAN’s invoice for a sum of US$2,621,939,54. Based on the invoices, UZMA made three-part payments to KHAN totalling US$1,531,721.53 and a balance sum of US$1,090,218.01 remained outstanding from UZMA to KHAN (“Outstanding Sum”).

On 24.10.2016, Petronas, UZMA and THHE entered into a novation agreement whereby UZMA took over THHE’s incomplete works under the Project.

The dispute arose when KHAN commenced Adjudication Proceedings against UZMA on the Outstanding Sum . UZMA raised a jurisdictional challenge on the ground that Khan’s claim was not based on a construction contract defined in Section 4 of CIPAA.

The Adjudicator did not decide on the jurisdictional challenge and proceeded with the adjudication pursuant to Section 27(3) CIPAA. The decision was in favour of KHAN in that UZMA was directed to pay the Outstanding Sum to KHAN with interest as stipulated in Adjudication Decision and the costs of Adjudication Proceedings shall be borne by UZMA.

UZMA seeks to set aside the adjudication decision pursuant to Section 15(b) and/or (d) CIPAA and/or stay the adjudication proceedings pursuant to Section 16(1)(b) and (2) whereas KHAN is seeking to enforce the adjudication decision pursuant to Section 28 CIPAA.

 Issues before the High Court

  1. Whether the adjudicator had exceeded her jurisdiction under section 15(d) CIPAA when KHAN’s claim was not based on a ‘construction contract’ relating to ‘construction work’ required by section 2 CIPAA?
  1. Whether the court is barred by sections 91 and 92 of Evidence Act 1950 from considering extrinsic evidence in ascertaining whether the contract between UZMA and KHAN related to construction work?
  1. Whether Khan’s claim arose from an oral contract but not a written contract within the meaning of section 2 CIPAA?
  1. Whether the contract between Khan and UZMA was void ab initio under Section 26 of Contracts Act 2950 due to lack of consideration?
  1. Whether there was a breach of natural justice (2nd Rule) under section 15(b) CIPAA?
  1. With regard to the Stay Application, whether the court should exercise its discretion under section 16(1)(b) and (2) CIPAA to stay the Adjudication Decision pending the disposal of the Suit (Unconditional Stay)? If the court does not exercise its discretion to grant the Unconditional Stay, should the court exercise its discretion pursuant to section 16(2) CIPAA to order a conditional stay?

, the Court allowed the Setting Aside application and consequently the Enforcement application was dismissed. The Stay application was struck out. Below are some of the grounds relied upon by the Learned Judge in coming to his decision to set aside the said Adjudication Decision:

  1. The LA between the Parties and Sub-Contract are not related to ‘construction work’. Clause 1 of LA (UZMA and Khan) provided that ‘Payment on behalf of [THHE] for project materials’ and clause 1 is subject to the final discussion between both parties. Clause 1 did not refer to any ‘construction work’ as defined in section 4 paragraphs (a) to (e), (A) and (b) of CIPAA. 
  1. Sections 91 and 92 of the Evidence Act apply to contracting parties and bar them from adducing any extrinsic evidence to contradict, vary, add to or subtract from the written terms of the contract. There was nothing in sections 91 and 92 from barring the court from considering extrinsic evidence. After considering the extrinsic evidence, the Court found that the Outstanding Sum did not relate to ‘construction work’ within the meaning of section 4 CIPAA and it only concerned UZMA’s agreement to pay Khan regarding Khan’s payment to THHE with 5% mark-up. Khan had not adduced iota evidence to show that the outstanding sum related to the construction work.
  1. With regard to whether there was a written contract, the Court held that Khan’s claim arose from a written contract. The definition of ‘writing’ and ‘written’ in Section 3 of Interpretation Act applied to CIPAA by virtue of section 2(1)(a) Interpretation Act because CIPAA is enacted after 18.5.1967. UZMA’s Agreement to Pay Khan is a written contract because it was based on Extrinsic Evidence which was constituted in the form of ‘electronic storage or transmission or any other method recording information or fixing information in a form capable of being preserved’.
  1. It was UZMA’s argument that the its agreement to pay KHAN is void ab initio on the ground that such a contract lacks consideration under Section 26 of the Contracts Act 1950. The Court rejected UZMA’s argument and found that there was consideration within the meaning of the 1st Limb of Section 26.
  1. With regard to the issue of breach of natural justice, the Court found that the Adjudicator did not deprive UZMA’s rights to adduce evidence and to submit on any issues which arose during the adjudication proceedings. The Adjudicator had considered all the defences advanced by UZMA in the Adjudication Proceedings, including defence to set off. If assuming the Adjudicator has breached the rules of natural justice, UZMA has not adduced any evidences to show that such breach is material to Adjudication Decision, and there was no real possibility that the Adjudicator would have reached different decision.

Although the Stay Application was struck out, the Court went on to opine that on the assumption that the LA between the Parties did relate to ‘construction work’, due to precarious financial position of Khan and to prevent UZMA from not being able to recover outstanding sums from Khan because Khan has no asset, business or office in Malaysia, a Conditional Stay of Adjudication Decision would have been granted.


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