Two recent High Court cases maintained the literal approach in dealing with the interpretation of ‘due or payable’ under Section 30(5) of CIPAA 2012 and the payment of ‘adjudicated amount’ under Section 30(1) of CIPAA 2012.
CASE 1 : ZETA LETRIK SDN BHD V JAKS ISLAND CIRCLE SDN BHD  MLJU 392:
Brief Background Facts:
JAKS Island Circle Sdn Bhd (“the Employer”) appointed JAKS Sdn Bhd (“Main Contractor”) as the Main Contractor for the Project. The Main Contractor then subcontracted the works to Zeta Letrik Sdn Bhd (“Subcontractor”).
Payment disputes arose between the Main Contractor and the Subcontractor in connection with the Project and this led to the Subcontractor initiating an adjudication proceeding against the Main Contractor pursuant to the Construction Industry Payment And Adjudication Act 2012 (“CIPAA 2012”), claiming for amongst others, unpaid certified amount, uncertified work, retention sum, materials on site and additional variation works. The Adjudicator decided in favour of the Subcontractor.
On 30.11.2021, the High Court allowed the Subcontractor’s application to enforce the Adjudication Decision pursuant to Section 28 of CIPAA 2012 and dismissed the Main Contractor’s applications to set aside and stay the Adjudication Decision pursuant to Section 15(b) and/or 15(d) and Section 16 CIPAA 2012.
Notwithstanding that, the Main Contractor failed to make any payment to the Subcontractor pursuant to the court order.
Thereafter the Subcontractor, issued a request seeking for direct payment from the Employer as the principal of the Main Contractor for the sums awarded to the Subcontractor in the Adjudication Decision pursuant to Section 30 of CIPAA 2012. There was no response from the Employer and hence the Subcontractor commenced an action in court for direct payment pursuant to S. 30 CIPAA 2012.
The main issues that were before the Court were: –
A) Whether there was money due or payable by the Employer to the Main Contractor?
In this case, the Employer did not serve the requisite notice in writing to the Main Contractor under Section 30(2) of CIPAA 2012 and the court found no reasons were forthcoming from the Employer for such failure. The Employer’s failure to issue the written notice to the Main Contractor as mandated by Section 30(2) of CIPAA 2012 is fatal to the defence that there is no money due or payable by the Employer to the Main Contractor at the time of the receipt of the request.
In deciding this issue, the Court clarified the meaning of the phrase “due or payable”.
Based on decided cases or precedents, the High Court found that the words ‘due or payable’ are to be interpreted literally, according to their ordinary meaning. In this case, the Employer’s contention that the monies are only payable if it is due to the Main Contractor, and not when it is merely payable, is contrary to the express words, and the cases decided to date on the interpretation of, the said provision.
The High Court further held that any amount that is paid under Section 30(3) CIPAA 2012 is recoverable by the Employer as a debt or set off from any money that is due or payable by the Employer to the Main Contractor.
B) The ‘adjudicated amount’ in Section 30 of CIPAA 2012:
In a separate issue, the High Court Judge also decided that that the words ‘adjudicated amount’ in Sections 30(1) and 30(3) CIPAA 2012 do not include interest on the adjudicated amount and the adjudication costs.
CASE 2 : BOND M&E SDN BHD V PALI PTP SDN BHD  MLJU 364
Brief Background Facts:
Pursuant to a Letter of Award dated 14.2.2017, Pali PTP Sdn Bhd as the Employer (“the Employer”) appointed Jeks Engineering Sdn Bhd as the main contractor for this Project (“Main Contractor”). Subsequently, Bond M&E Sdn Bhd was appointed as the Subcontractor (“Subcontractor”) for the Works in respect of the Project.
Payment disputes arose between the Main Contractor and the Subcontractor in connection with the Project whereby parties have referred the disputes to adjudication proceeding. Part of the Adjudication Decision was set aside and the remaining part of the Adjudication Decision was enforced by the High Court. .
Following the Main Contractor’s failure to pay the amounts due and owing to the Subcontractor, the Subcontractor commenced a Section 30 CIPAA 2012 proceeding against the Employer
Similar issues were raised before the High Court, namely:
A) Whether there was money due or payable by the Employer to the Main Contractor at the time of receipt of the Notice?
The Employer took the position that the money which is due or payable under Section 30(5) CIPAA 2012 should be the amount that is payable pursuant to the construction contract between the parties and should not extend to an adjudication decision between the Main Contractor and the Subcontractor or disputes referred to an arbitration proceeding. However, this argumentwas not accepted by the Learned High Court Judge because the the Employer is a ‘principal’ within the meaning of Section 4 of CIPAA 2012 and that there was money payable by the Employer to the Subcontractor at the time when the Employer received the notice under Section 30(1) of CIPAA 2012. Further, the court was of the view that that essentially, monies are due or payable under the chain of construction contracts and this is fortified by the findings and conclusion of the Adjudicator.
B) Whether the term ‘adjudicated amount’ in Section 30 of CIPAA 2012 includes interest and costs as awarded under the Adjudication Decision?
The High Court held that the expression ‘adjudicated amount’ in Section 30(1) and Section 30(3) CIPAA 2012 does not include interest and adjudication costs. If Parliament had intended for a principal to pay the adjudicated amount, interest and costs pursuant to these provisions, this would have been expressly stated so.
The clarification by the High Court on the meaning and extend of the phrase “due or payable” pursuant to Section 30(5) CIPAA 2012 is very much welcomed as it also further enhances the objective of CIPAA 2012. Employers or the Principal in a construction contract must be alert in issuing out the relevant notices as required by the Act and to take note that the definition of due or payable is different from “due and payable”, and this also extends to adjudication decisions that are not satisfied by the principal.
Apart from that, it is also pertinent to take note that the sum claimable under Section 30 of CIPAA 2012 is only confined to the ‘adjudicated amount’ awarded to the subcontractor (i.e. the party who obtained the adjudication decision in his favour) excluding the interest and/or costs of adjudication.
This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.
About the Author
Felicia Lai Wai Kim
Harold & Lam Partnership
Senior Legal Executive
Harold & Lam Partnership