Section 2 CIPAA provides that it applies to “every construction contract made in writing“. The AIAC had issued a Circular No 03 to define what it understands to be a contract made in writing, namely:
“1. There is a contract in writing:
a) If the contract is made in writing (whether or not it is signed by the parties);
b) if the contract is made by exchange of communications in writing; or
c) 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.”
If a contract is not made in writing, then CIPAA would not apply and parties would have to resort to litigation to resolve their disputes. However, what if a construction contract was first made in writing, but subsequently amended orally? Would this oral amendment to the construction contract then fall under CIPAA, considering that the initial contract was in writing?
This question arose in Carillion Construction v Devonport Royal Dockyard. In that case, there was a written contract under which Carillion would be reimbursed its costs and earn a fee based on a gain-share/pain-share arrangement. A gain-share/pain-share arrangement is one where any underspend compared to the target budget would be shared by the parties jointly, conversely any over-spend would be contributed by the parties jointly. However, Carillion alleges that this written contract was subsequently amended orally and pursuant to the amendment, the gain-share/pain-share arrangement was abandoned. Devonport refused to pay pursuant to the “amended” arrangement and the matter was then referred to adjudication.
The adjudicator found in favour of Carillion and decided that there was a binding amendment to the written contract. Dis-satisfied, the employer took the matter to Court.
The learned judge held that the UK Construction Act (then) did not provide for adjudication in respect of oral contracts. Therefore, an oral variation to a written contract would be excluded. (Note: Subsequently, the Local Democracy, Economic Development and Construction Act repealed the need for contracts to be in writing in order to be subject to adjudication. However, Malaysia still requires a written contract).
Taking the cue from Carillion, it would seem that once a written contract is amended orally, then the entire contract would fall outside the purview of CIPAA. Of course, as CIPAA relates only to payment disputes, the amendment would logically have to affect the terms of payment, whilst an oral amendment of other terms of the contract may nevertheless not lead to its exclusion from CIPAA.
Kheng Hoe Advocates advises clients on arbitration, litigation, adjudication (CIPAA) and mediation of building and construction contract disputes. We also publish the Construction Law Malaysia Youtube Channel. We can be reached at email@example.com.