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2021 MarsdenLR 1505
HIGH COURT MALAYA SHAH ALAM
KHAIRI CONSULT SDN BHD – Appellant
Versus
GJ RUNDING SDN BHD – Respondent
[Civil Appeal No: BA-12AC-9-09/2020]
Conditional payment clauses in construction consultancy contracts are void under CIPAA, emphasizing the enforceability of obligations to pay based on the contract terms irrespective of third-party considerations.
Headnote:(A) Evidence Act 1950 – Sections 91 and 92 – Construction Industry Payment and Adjudication Act 2012 – Section 35 – Construction consultancy contract – Dispute between parties regarding payment obligations under a consultancy contract for construction services – Court found that clauses requiring payment contingent on third-party receipts were void, per Section 35 of the CIPAA – Invalidity of provisions does not preclude rightful claim for payment based on completion of services. (Paras 12-46)
(B) Contractual Interpretation – Principles of contra proferentem applied to interpret contract clauses against the party that drafted them – Court ruled that obligations under the contract did not depend on the issuance of a third-party approval certificate before payment was due. (Paras 16-24)
Facts of the case: The plaintiff sought payment for engineering consultancy services rendered for bridge design related to a construction project. Defendant disputed obligation to pay citing failure to obtain Wayleave Approval and reliance on contract clauses requiring payment upon receiving funds from the project's employer. (Paras 5-11)
Findings of Court: The court upheld the plaintiff's right to payment, emphasizing the binding nature of the contract and the invalidity of conditional payment clauses under the CIPAA, establishing that the defendant had committed breach by not making timely payments. (Paras 30-46)
Issues: Key issues included whether the contract required proof of third-party certification for payment, the validity of conditional payment terms, and whether the plaintiff's claims were barred due to alleged defects. (Paras 15-33)
Ratio Decidendi: The court concluded that the obligations for payment were straightforward under the terms of the contract and did not hinge on external factors such as employer certifications. It applied the contra proferentem principle against the defendant as the drafter of the contract. (Paras 19-24)
Result: Appeal dismissed with costs awarded to the plaintiff.
Key Points: - The contract language was interpreted as not requiring a certificate of payment from the Employer before the Defendant’s payment obligation arises. (!) (!) - The court held that the conditional payment provision (back-to-back payment dependent on employer payment) is void under CIPAA 35(1) and (2)(a). (!) (!) - The court applied contra proferentem, interpreting clauses against the drafter (the Defendant) to find payment liability without third-party certification. (!) (!) - The Plaintiff is entitled to payment based on completion of services and contract terms, independent of external third-party approvals. (!) (!) - The contract did not specify a time for payment; the defendant was obligated to pay within a reasonable time under s 47 CA, and breached by delaying. (!) (!) (!) - Summary judgment was upheld, and the defendant’s appeal dismissed with costs. (!) (!) - The defendant’s estoppel and malice arguments were considered and rejected to negate payment obligations. (!) (!)
What is the validity of conditional payment provisions under CIPAA in a construction consultancy contract?
What is the effect of contra proferentem on interpreting contract clauses concerning payment obligations in this case?
What is the proper basis for payment to the plaintiff under the contract when payment is not tied to third-party certification or current employer payment?
JUDGMENT
(Appeal Against Sessions Court's Summary Judgment)
Background
[1] This judgment will refer to the parties as they appear in the Sessions Court (SC).
[2] The plaintiff company (Plaintiff) provides engineering consultancy services.
[3] The defendant company (Defendant) is the main consultant for the construction of a road from Nilai-Labu to "Bandar Enstek/KLIA" (Project).
[4] The Project required, among others, two bridges (Bridges) to be built over railway tracks on land belonging to Railway Assets Corporation Bhd (RAC).
[5] The Plaintiff sent a letter dated 8 September 2016 to the Defendant [Plaintiff's Letter (8 September 2016) ] which stated, among others, as follows:
(1) the scope of work (Services) "shall" be, among others, the design of the Bridges for the purpose of application to Keretapi Tanah Melayu Bhd (KTMB) and RAC for "wayleave" approval from KTMB and RAC (Wayleave Approval); and
(2) the professional fee for the design of the Bridges "shall" be RM1,500,000.00 (Fee).
[6] The Defendant replied to the Plaintiff's Letter (8 September 2016) in a letter dated 26 January 2017 [Defendant's Letter (26 January 2017)]. According to the Defendant's Letter (26 January 2017), among others (with grammatical and typographical errors)-
"We [Defendant] are pleased to appoint [the Plaintiff] as the Consultant for [the Bridges] to provide the [Services]. The fees for the [Services] are based on the proposed fees as per [the Plaintiff's Letter (8.9.2016)] subject to other sum as may be adjusted for the [Project] to [sic] the terms and conditions as stated below:
1. Your appointment as consultant shall be deemed to be effective from 14 September 2016 and shall subsist until the issuance of the Final Certificate to [the Defendant] or earlier termination of this Agreement (as the case may be) [Clause 1].
...
4. Scope Of Works
The scope of works under this project shall be as follows:
- Preparation of design and documentation for two (2) [KTMB] Road Over Bridge (ROB) at Ch. 1100 and Ch. 9600 for the purpose of wayleave application to KTMB and [RAC] and to obtain the [Wayleave Approval].
...
[Clause 4].
...
7. Agreement
This Letter of Appointment shall constitute a binding agreement between [Plaintiff] and [Defendant] [Clause 7].
...
9. Payment
Payment shall be on a back to back basis i.e you [Plaintiff] shall be paid within 7 days upon [the Defendant's] received [sic] payment from the client. [Clause 9]"
[Emphasis Added]
[7] The Plaintiff alleged that the Services had been provided when Wayleave Approval had been granted for the design of the Bridges (prepared by the Plaintiff) by way of RAC's letter dated 18 September 2017 [RAC's Letter (18 September 2017) ]. The Plaintiff had sent a letter dated 25 September 2017 to the Defendant [Plaintiff's Letter (25 September 2017) ] which informed the Defendant that Wayleave Approval had been obtained for the design of the Bridges. In fact, RAC's Letter (18 September 2017) was enclosed in the Plaintiff's Letter (25 September 2017).
[8] Regarding the Fee, on 19 April 2018, the Defendant paid to the Plaintiff a sum of RM500,000.00 by way of a cheque (Defendant's 1st Part Payment). The Defendant had issued a "Payment Voucher" (PV) dated 19 April 2018 (Defendant's 1st PV) for the Defendant's 1st Part Payment. It was stated in the Defendant's 1st PV that the payment of RM500,000.00 was for "CONSULT FEE (MVV)/PROGRESS PAYMENT No 1".
[9] The Plaintiff had sent 3 letters dated 28 August 2018, 19 December 2018 and 12 March 2019 for the Defendant to pay the balance of the Fee (Plaintiff's 3 Requests For Payment).
[10] The Defendant replied to the Plaintiff's letter dated 12 March 2019 by way of a letter dated 18 March 2019 [Defendant's Letter (18 March 2019) ]. The Defendant's Letter (18 March 2019) stated as follows, among others (with grammatical and typographical errors):
"...
PROJECT:
Design Fees for Bridges over KTMB
The above matter and [the Plaintiff's letter dated 12 March 2019] refers.
We are sorry that w
