INTRODUCTION
This case concerns the operation and application of section 30 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA).
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BACKGROUND FACTS
The Plaintiff is a private limited company involved in the business of electrical engineering installations. The First Defendant (D1) and Second Defendant (D2) are also private limited companies involved in the construction business. It is pertinent to note that D1 and D2 are connected through a Mustafa bin Ali who is a vice president of D1 as well as an alternate director of D2. They also have a common shareholder who is Dato’ Ahmad Amer bin Awang.
D1 is the main contractor for the project known as the Klang Valley MRT Station Project (“Project”). D1 appointed D2 as its sub-contractor to carry out works for the Project. D2 in turn, appointed the Plaintiff as its sub-contractor to carry out the supply and installation of fibre optic cables and cable containment of the Project.
Disputes and differences arose between the Plaintiff and D2 under the Contract and the Plaintiff referred the disputes and differences to statutory adjudication under the CIPAA. On 6 December 2018, the Adjudicator ordered D2 to pay the sum of RM6,521,818.39 with interest at 5% per annum from the date of his decision to full realization together with costs and adjudicator’s fees and expenses of RM111,250.00 (“Decision”).
Upon receiving the Decision, the Plaintiff demanded for payment of the adjudicated sum pursuant to the Decision from D2. However, D2 failed, refused or neglected to do so and replied by letter dated 18 December 2018 to the Plaintiff that it was because D2 was not paid by D1. The Plaintiff filed an application to enforce the Decision pursuant to s. 28 of the CIPAA.
Around the same time, the Plaintiff also by way of letter dated 27 December 2018 issued a notice to D1 to make payment under the Decision as the principal of D2 pursuant to s. 30 of the CIPAA. However, D1 by way of letter dated 5 March 2019 replied to the Plaintiff that no outstanding sum is due and owing by D1 to D2. Consequently, the Plaintiff filed the application pursuant to s. 30 of the CIPAA against D1 and D2 (“S.30 Application”).
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THE HIGH COURT DECISION
The High Court allowed the S.30 Application by ordering D1 to make direct payment to the Plaintiff for the sum of RM6,521,818.39 with interest at 5% per annum from 6 December 2018 until full realization together with the costs of adjudication of RM111,250.00 within 7 days from 17 December 2019. The grounds in support of the decision are as follows:
- a) The Judge found that D1 has failed to comply with the requirements of s. 30(2) of the CIPAA. This is because D1 did not issue the mandatory notice under s. 30(2) of the CIPAA to D2 and this is fatal to the defence that there are no monies due and owing from D1 to D2.
The Judge referred to the case of HMN Nadhir Sdn Bhd v Jabatan Kerja Raya Malaysia & Ors [2018] 1 LNS 1938, Lee Swee Seng J (now JCA) and held as follows:
“[26] There can be no proof of payment as the Defendant had failed or refused to issue the notice pursuant to section 30(2) of the CIPAA. I agree with the Plaintiff that the Defendant cannot rely on its breach of section 30(2) to avoid its mandatory obligation to make direct payment under section 30(3) of the CIPAA.”
- b) Further, D1 did not discharge its burden of proof under s. 30(5) of the CIPAA to show that no monies are due and payable to D2. D1’s contended that there are no monies due and payable to D2 as the result of the reconciliation of D2’s statement of account (“Reconciliation Exercise”). The Reconciliation Exercise showed that D2 instead owed D1 the sum of RM127,383.09. D2 confirmed its acceptance of the Reconciliation Exercise.
However, the Judge agreed with the Plaintiff that the Reconciliation Exercise is dubious in light of D2’s nonchalant acceptance of it given that both D1 and D2 are connected in having common shareholder and key personnel at all material times. Moreover, D1 merely exhibited a statement of accounts of the purported Reconciliation Exercise devoid of any document to substantiate or support the same.
- The Judge referred to the case of CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd [2018] 1 LNS 380 where Lee Swee Seng J (now JCA) held as follows:
“[25] I would agree with the Plaintiff that this is not a case where the Defendant can seriously dispute the amount to be paid over to the Plaintiff especially in the absence of a mandatory notice to BHL Builders under section 30(2) and further in the absence of a rebuttal of the allegation of the Adjudicated Amount to be paid by the Defendant to the Plaintiff when the Defendant had the first opportunity to do so.”
- The High Court also found that the subsequent justification by D1 that there are no monies due and payable as the result of the Reconciliation Exercise dubious and an afterthought in attempt to refuse payment. The statement of accounts of the purported Reconciliation Exercise is seemingly only prepared in March 2019 after it was requested by the Plaintiff’s claims representative on 11 March 2019 in response to D1’s solicitor’s letter dated 5 March 2019. D1’s solicitor’s letter was issued to the Plaintiff in response to the notice issued on 27 December 2018 to D1 pursuant to s. 30(1) of the CIPAA. Instead of replying to the Plaintiff, the Judge found that D1 should have responded to D2 within 10 working days as compulsorily required by s. 30(2) of the CIPAA.
The Judge further found that the exhibited statement of accounts of the purported Reconciliation Exercise has little, if no, evidential value in the absence of cogent substantiating documents in support thereof. Put simply, the statement of accounts is unworthy and unreliable.
In this regard, the Judge allowed the S.30 Application with costs payable by D1 to the Plaintiff.
This High Court decision has recently been unanimously affirmed by the Court of Appeal. At the time of the preparation of this article, the Court of Appeal has not yet issued its ground of judgment.
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CONCLUSION
Section 30 CIPAA applications are becoming more often these recent years as sub-contractors seek for payment from the principal. Based on the above, it is important for all employers, or contractors who are considered as “principal” under CIPAA to be vigilant and alert of the technical requirements in Section 30 CIPAA. The High Court Judge had found that the failure to issue a letter to the contractor (unsuccessful party in the adjudication) is in breach of the statutory requirements and this is fatal to the principal’s defence. The principal’s failure or negligence in issuing such notices on time would most likely be to the principal’s detriment in defending the Section 30 claim.
Secondly, the High Court Judge has also clearly set out that the principal has the burden of proof under Section 30(5) that there are no monies due and owing to the contractor who was the unsuccessful party in the adjudication. Mere existence of statement of accounts that are not contemporaneous was not considered to be good defence in this case.
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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.
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About the Author
Pan Yan Teng
Senior Associate
Harold & Lam Partnership
yanteng@hlplawyers.com
