INTRODUCTION
It is trite that where a party who has obtained an adjudication decision in its favour fails to receive payment of the adjudicated amount from the party against whom the adjudication decision was made, the successful party may seek direct payment from the principal pursuant to section 30 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”).
However, section 30 may only be invoked if money is due or payable by the principal to the adjudication respondent at the time of receipt of the request under section 30(1).
This requirement was recently considered by the Court of Appeal in Tri Pacific Engineering Sdn Bhd v KL Eco City Sdn Bhd [2026] MLJU 1313.
BRIEF BACKGROUND
The Plaintiff was appointed by the Main Contractor, Ireka Engineering & Construction Sdn Bhd (“Ireka”), as the Sub-Contractor for certain works under the project. The Plaintiff alleged that it had completed the works but that Ireka had failed to pay the sums due under the sub-contract.
The Plaintiff then commenced adjudication proceedings under the CIPAA against Ireka. Before the conclusion of the adjudication proceedings, the Plaintiff had already received RM532,940.70 from Ireka.
On 8.5.2023, the adjudicator delivered the adjudication decision in favour of the Plaintiff, and the Plaintiff then sought direct payment from the Defendant, as principal, for the total adjudicated sum of RM1,191,624.42.
The Plaintiff issued two notices under section 30 of the CIPAA, namely the first notice dated 9.5.2023 and the second notice dated 23.5.2023. The Defendant subsequently made direct payment of RM998,653.66 to the Plaintiff.
ISSUE BEFORE THE COURT
The predominant issue before the High Court, and later on appeal, was whether there was any money due or payable by the Defendant to Ireka at the time of receipt of the Plaintiff’s notice of demand made under section 30 of the CIPAA and, if so, whether the Defendant was liable to pay the balance adjudicated amount to the Plaintiff.
The Plaintiff contended that the Final Certificate dated 10.6.2023 showed that monies were due or payable by the Defendant to Ireka, and that the statutory requirement under section 30(5) was therefore satisfied.
The Defendant, on the other hand, contended that at the time of receipt of the second notice, only the balance retention sum of RM998,653.66 was due or payable to Ireka, and that this sum had already been paid directly to the Plaintiff. The Defendant further relied on the Settlement Agreement entered into with Ireka and contended that, even taking the Final Certificate into account, the amount due or payable to Ireka was only RM87,916.92.
HIGH COURT
The High Court dismissed the Plaintiff’s claim. The High Court Judge found that the valid Notice of Request for the purpose of section 30 of the CIPAA was the second notice, and not the first. This was because, as at the date when the first notice was issued, the time frame for Ireka to pay the adjudicated sum to the Plaintiff under the adjudication decision had not yet expired. Accordingly, the first notice was premature and invalid.
The learned High Court Judge then considered whether there was any money due or payable by the Defendant to Ireka at the time of receipt of the second notice, and concluded on a balance of probabilities that, as at the time of the second notice, only the balance retention sum in respect of the Plaintiff’s portion of works amounting to RM998,653.66 was due by the Defendant to Ireka. As that sum had already been paid directly to the Plaintiff, there were insufficient funds to sustain the Plaintiff’s claim under section 30.
COURT OF APPEAL
The Court of Appeal upheld the High Court’s decision and dismissed the appeal.The Court of Appeal ruled that the right to direct payment from the principal arises only when there is money due or payable by the principal to the successful party in the adjudication proceedings at the time of receipt of the Direct Payment Demand. In this case, the material time was when the second notice was received by the Defendant.
The Court of Appeal adopted and reiterated the position taken in HSL Ground Engineering Sdn Bhd on the effect of section 30(5) of the CIPAA and the words “due or payable”. If there is an obligation or liability to pay upon it being properly claimed, the Defendant is obliged to make direct payment if there is money due or payable under section 30(5) of the CIPAA.
The Court also accepted the distinction between “due” and “payable”, namely that a debt may accrue when the relevant certificate is issued, but the money only becomes due upon expiry of the payment period stipulated in the contract.
The focal point of the dispute was the Final Certificate dated 10.6.2023. The Plaintiff argued that this demonstrated that there were funds due and payable by the Defendant to Ireka at the material time. The Court of Appeal disagreed.
After reviewing the Final Certificate, it found that the same showed the total amounts due to 12 nominated subcontractors, of which the Plaintiff itself was one, and that from that figure, only RM998,653.66 was due to the Plaintiff.
The Court therefore did not agree with the Plaintiff’s contention that the Final Certificate demonstrated that, at the material time, there were funds due and payable to the Main Contractor.
The Court of Appeal further held that, pursuant to the Final Certificate and after taking into account the set-off or deductions made in accordance with the Settlement Agreement, the amount due or payable by the Defendant to Ireka was RM87,916.92.
However, that sum would only become due when the Final Certificate was issued on 10.6.2023. Since the Plaintiff took the position that there was no fresh demand under section 30 of the CIPAA after the second notice, there was no amount due or payable by the Defendant to Ireka as at May 2023 beyond the RM998,653.66 already paid.
The Court also found that the Settlement Agreement was a valid agreement between the Defendant and Ireka and could be taken into account in arriving at the amount due or payable by the Defendant to Ireka.
KEY TAKEAWAYS
Section 30(5) is the over-arching precondition before any of the other subsections in section 30 may be utilised.
Therefore, if there is no money due or payable by the principal to the party against whom the adjudication decision was made at the time of receipt of the request under section 30(1), section 30 cannot be invoked.
For subcontractors, the critical question is whether the monies were due or payable at the time the principal received the Direct Payment Demand.
Where further sums only become due or payable later, a fresh demand may be required. Otherwise, those later sums may fall outside the scope of the earlier request.
CONCLUSION
The decision of the Court of Appeal is a reminder that section 30 of the CIPAA is not an automatic mechanism of recovery, but a statutory process governed by specific requirements.
Timing is critical, and the right to direct payment from the principal under section 30 only arises when there is money due or payable by the principal to the adjudication respondent at the time of receipt of the request.
Disclaimer: This article is for general information only and does not constitute legal advice or legal opinion. It should not be relied upon as a substitute for specific legal advice. No person should act (or refrain from acting) based on this article without obtaining advice on the specific facts and circumstances. Halim Hong & Quek does not accept responsibility or liability for any loss or damage arising from reliance on this article. Halim Hong & Quek reserves the right to update, amend or withdraw this article at any time. All rights reserved.
Subscribe to DISPUTES DECODED BY HHQ, our bi-monthly legal update, at https://mailchi.mp/hhq/2nofd6rjlt to receive our latest legal updates and articles. You may also visit the HHQ website at https://hhq.com.my/insights/ for further articles and insights from our team.
About the authors
Chew Jin Heng
Senior Associate
Dispute Resolution
Halim Hong & Quek
jhchew@hhq.com.my
○
Tan Zec Kie
Associate
Dispute Resolution
Halim Hong & Quek
zk.tan@hhq.com.my
