The enactment of Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) is intended to provide remedies for the recovery of payment in the construction industry. However, the ambit of CIPAA 2012 is not merely restricted to the construction work in traditional sense.
Section 4 of CIPAA 2012 defines ‘construction work’ as:
‘construction work’ means the 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).
Notwithstanding the interpretation of “construction work” in CIPAA 2012, the High Court had in the case of MIR Valve Sdn Bhd v TH Heavy Engineering Bhd and other cases [2018] 7 MLJ 796 held that the meaning of construction work and construction consultancy work under CIPAA shall be construed widely.
MIR Valve Sdn Bhd v TH Heavy Engineering Bhd and other cases [2018] 7 MLJ 796
Background Facts:
The background facts of this case is as follow:-
- The Project in this case relates to the work done on a ship to convert it into a floating production storage and offloading (FPSO) vessel.
- The disputes between the parties arose from a purchase order for the supply of valves for a project to be installed on the FPSO vessel.
- The Claimant alleged that the Respondent failed to honour two tax invoices and proceed to refer the dispute to adjudication proceeding pursuant to CIPAA 2012.
- The Adjudication Decision was decided in favour of the Claimant and the Respondent sought to set aside the Adjudication Decision pursuant to Section 15 of CIPAA 2012 on the ground that the Contract in question is not a construction contract within the ambit of CIPAA 2012.
Decision of High Court
The High Court held that the meaning of construction work and construction consultancy work as defined in CIPAA shall not be construed restrictively.
The Court held that one must look at the functional purpose of the work and not the form of the structure with respect to its type of structure. The High Court viewed that the conversion work from a ship to an FPSO vessel would mean that it no longer serves the purpose of a ship but it has been transformed into a different purpose, that of the oil and gas industry.
As such, the conversion work from a ship to an FPSO vessel is construction work:-
[25] One can immediately appreciate that the conversion of the ship to a FPSO vessel is such that the ship no longer serves the purpose of a ship but is now transformed into a different purpose; that of the oil and gas industry. This is where one must of necessity look at the functional purpose served by the conversion works and not the form of the structure with respect to its type of structure.
[26] With the conversion, it no longer serves the purpose of a ship in transporting people or goods from one place to another. Its predominant purpose is that of serving the gas, oil and petrochemical industry with respect to drilling for oil, gas and petrochemical, processing it, storing and offloading it. In short it is now functioning like a refinery. True, it can still be moved from one place to another in exploring for gas, oil and petrochemical but no longer in the sense of transporting people or goods from one place to another.
[27] Its total character and purpose have been transformed such that though it bears the shape and structure of its former form, its function is now fitted for the oil, gas and petrochemical work. Its focus is forged with the fundamental change and alteration in what it can now do which previously it could not. It is now no longer a ship, but converted now into an oil rig cum refinery.
Lee Swee Seng J (as his Lordship then was) – MIR Valve Sdn Bhd v TH Heavy Engineering Bhd and other cases [2018] 7 MLJ 796