Introduction

The Construction Industry Payment and Adjudication Act 2012 (Act 746) (“CIPAA”) introduced Section 30 which is a recourse and remedy available to the successful claimant in an adjudication claim who has obtained an Adjudication Decision in its favour against the respondent. The winning party may then seek direct payment of the adjudicated amount from the principal of the losing party in the Adjudication Decision.

 

Section 30 – Direct payment from principal (1) If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount, the party who obtained the adjudication decision in his favour may make a written request for payment of the adjudicated amount direct from the principal of the party against whom the adjudication decision is made.  . (2) Upon receipt of the written request under subsection (1), the principal shall serve a notice in writing on the party against whom the adjudication decision was made to show proof of payment and to state that direct payment would be made after the expiry of ten working days of the service of the notice.  . (3) In the absence of proof of payment requested under subsection (2), the principal shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour.  . (4) The principal may recover the amount paid under subsection (3) as a debt or set off the same from any money due or payable by the principal to the party against whom the adjudication decision was made.  . (5) This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).     .                                                                                                    (Emphasis added)

 

The High Court in the case of Bumimetro Construction Sdn Bhd v Mayland Universal Sdn Bhd and another appeal [2017] MLJU 2245; [2017] CLJU 1959 (HC) held that the objective of CIPAA is to facilitate regular and timely payment in respect of construction contracts, provide a mechanism for speedy dispute resolution through adjudication and to provide remedies for the recovery of payment in the construction industry. The remedies provided for in Section 30 of CIPAA whereby the winning party in an Adjudication Decision may require the principal of the losing party in the Adjudication Decision to make direct payment shows that Parliament intended an Adjudication Decision to have immediate bite and not just a mere bark.

 

Overview of Cases/ Authorities

(A) Conditions and Requirements to Invoke Section 30 of CIPAA

The High Court in the case of Murni Environmental Engineering Sdn Bhd v Eminent Ventures Sdn Bhd & Anor and other suits [2016] MLJU 691 (HC) held that:

 

1. (i) Section 30 of CIPAA does not require there to be a contractual relationship, but only that there is a principal.
2. (ii) The fact that the principal has no knowledge of the adjudication claim or is not a party to the adjudication proceedings is not relevant.
3. (iii) All that is required under section 30 of CIPAA is for there to be a request by the winning party (subcontractor) to the principal (employer) for payment of the adjudicated sum.
4. (iv) The principal shall then serve a notice to the losing party (main contractor) on proof of payment and to state direct payment would be made after the expiry of 10 working days of service of notice and in the absence of proof of payment, the principal shall pay the adjudicated sum to the winning party.
5. .

In the case of B Cor Geotechnics Sdn Bhd v Panzana Enterprise Sdn Bhd [2019] MLJU 1030; [2019] CLJU 1393 (HC), the High Court held that:

 

1. (i) There is no prerequisite for a contractual relationship to exist between the winning/ successful party in an adjudication and the principal of the party against whom the adjudication decision was made, in order to rely on the remedy under Section 30 of CIPAA.
2. (ii) It is also not a prerequisite to an action under Section 30 of CIPAA that the winning/ successful party must have applied to enforce an adjudication decision under Section 28 of CIPAA.
3. (iii) All that is required to “set the wheels in motion” for an action under Section 30 of CIPAA is a written request by the winning/ successful party in an adjudication to the principal for payment of the adjudicated sum as provided under Section 30(1) of CIPAA.
4. .

The High Court in the case of Glocal Tech Engineering Sdn Bhd v Panzana Enterprise Sdn Bhd [2021] MLJU 474; [2021] CLJU 429 (HC) followed the legal principles enunciated in Murni Engineering (supra) and B Cor Geotechnics (supra), and laid out the following conditions which must be fulfilled before the winning party in an adjudication decision can invoke the remedy in Section 30 of CIPAA:

 

1. (i) There must be an adjudication decision whereby the winning party is entitled to an adjudicated amount which is to be paid by the losing party;
2. (ii) The losing party has failed to pay the adjudicated amount to the winning party;
3. (iii) The winning party has made a written request to the principal for the adjudicated amount to be paid directly to the winning party;
4. (iv) The principal did not serve a written notice to the losing party to show proof that the losing party has paid the adjudicated amount to the winning party or having served such notice, the losing party has failed to furnish the proof of payment and in any event, the principal did not pay the adjudicated amount directly to the winning party; AND
5. (v) There is money due or payable by the principal to the losing party at the time when the principal receives the written request for payment from the winning party.
6. . 

(B) “Principal”

 

Section 4 of CIPAA defines a “principal” as a “party who has contracted with and is liable to make payment to another party where that other party has in turn contracted with and is liable to make payment to a further person in a chain of construction contracts”. Typically, a principal is the employer or main contractor in a chain of construction contracts for the Project:

Peck Chew Piling (M) Sdn Bhd v Panzana Enterprise Sdn Bhd [2022] MLJU 390; [2022] CLJU 428 (HC)

On 19.12.2019, the applicant/ winning party (sub-subcontractor) in this case obtained an adjudication decision in its favour against the losing party (subcontractor).

In 2017, the respondent/ principal (main contractor) in this case was appointed as the main contractor for a highway project. The principal (main contractor) then appointed the losing party (subcontractor) to carry out one of the work packages for the project. The losing party (subcontractor) engaged the winning party (sub-subcontractor) to provide rental services of equipment associated with the project.

The High Court held that the respondent (main contractor) is a “principal” as it is indisputable that the respondent/ principal (main contractor) contracted with the losing party (subcontractor), and is liable to make payment to the losing party (subcontractor). The losing party (subcontractor) is then liable to make payment to the winning party (sub-subcontractor), being a “further person” in the chain of construction contracts for the project.

The respondent/ principal (main contractor) also contended that it is not a “principal” as it had terminated the employment of the losing party (subcontractor) on 15.4.2019, before the receipt of the written notice from the winning party (sub-subcontractor) under Section 30 of CIPAA.

The High Court ruled that the termination does not affect the respondent’s (main contractor) position as a “principal”. The High Court explained that if Parliament had intended to confine the applicability of Section 30 of CIPAA to only existing or surviving contracts, it could have easily provided express words to that effect in the statute.

 

(C) “Adjudicated Amount”

Section 30 of CIPAA provides that the winning party who obtained the adjudication decision in his favour may request for the payment of the “adjudicated amount” directly from the principal. However, CIPAA does not expressly define what constitutes “adjudicated amount” under Section 30.

The Courts have consistently ruled that the phrase “adjudicated amount” under Section 30 of CIPAA includes the interest and costs awarded in an adjudication decision:

 

Pali PTP Sdn Bhd v Bond M&E Sdn Bhd [2023] 6 MLJ 176; [2023] 9 CLJ 740 (CA)

The Court of Appeal held that the term “adjudicated amount” in Section 30 of CIPAA would include both interest and costs, aside from the principal claim sum awarded in the adjudication decision.

The Court of Appeal opined that in the absence of definition of the phrase “adjudicated amount” in CIPAA, a purposive construction or interpretation of the phrase includes interest and costs, in furtherance of the purpose and object of the statute to protect and/or safeguard the rights particularly of the small contractors and/or subcontractors.

If the phrase “adjudicated amount” does not include interest and costs, the winning party (subcontractor) in this case would need to seek recovery twice, (i) once against the principal (employer) for the principal claim sum awarded and (ii) then against the losing party (main contractor) separately for interest and costs only.

 

Zedelta Sdn Bhd v Mayland Supreme Sdn Bhd [2023] 10 MLJ 95; [2023] 3 CLJ 977 (HC)

The High Court ruled that the term “adjudicated amount” in Section 30 of CIPAA includes both the interest and costs awarded in the adjudication decision. The Court allowed interest on the adjudicated sum at the rate of 5% per annum. However, it is to be calculated from the date of the decision of the Court until full settlement.

 

TCS Construction Sdn Bhd v KTCC Mall Sdn Bhd and another case [2024] MLJU 522; [2024] CLJU 508 (HC)

The High Court followed the interpretation adopted by the Court of Appeal in Pali PTP (supra) which held that “adjudicated amount” includes interest and costs.

 

(D) “Due or Payable”

The High Court in HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another case [2021] 8 MLJ 347; [2024] CLJU 508 (HC) held that:

 

1. (i) The winning party may seek for direct payment from a principal in respect of any money due or payable.
2. (ii) Therefore, it is not limited to the unpaid money due pursuant to progress certificates issued by the principal to the losing party, but any other money payable by the principal to the losing party as at the date the principal received the written request pursuant to Section 30(1) of CIPAA from the winning party.
3. (iii) Ordinarily, money payable will include any uncertified progress claims and release of retention money.

 

The High Court in MKP Builders Sdn Bhd v Turnpike Synergy Sdn Bhd [2021] MLJU 1502; [2021] CLJU 1238 (HC) followed the principles enunciated in the case of HSL Ground Engineering (supra) and clarified that:

 

1. (i) Accrual of the debt crystallizes the obligation or liability to pay. There must be accrual of the debt before money pursuant thereto is either payable or due.
2. (ii) Interim and final payment debt for typical construction contracts accrue when the interim and final certificate are issued (otherwise on the expiry of the prescribed time for certification stipulated in the construction contract if the certificate has been withheld). However, if there is no certification mechanism stipulated in the construction contract, then it accrues on the receipt of the invoice. Upon such accrual, the money is payable.
3. (iii) Money will only be due after the expiry of the date of payment on the certificate stipulated in the construction contract. However, if there is no certification mechanism stipulated in the construction contract, then only after 30 days from the receipt of the invoice as provided in Section 36 of CIPAA.
4. (iv) Retention money is similarly payable upon the issuance of the relevant certificate such as the certificate of practical completion and/or certificate of making good defects as prescribed in the construction contract and only due after the expiry of the date of payment on the relevant certificates.
5. (v) In the event a construction contract is prematurely terminated, the debt accrues forthwith upon the occurrence of the termination and the money is accordingly both due and payable.

 

(E)       Burden of Proof

The burden of proof is on the principal to prove that there is no money due or payable by the principal to the losing party. A bare assertion (assertion not supported with documentary evidence) from the principal that there is no money “due” or “payable” is insufficient. This could lead the Court to draw an adverse inference against the principal that there are indeed sums due or payable.

The High Court in the case of Chong Lek Engineering Works Sdn Bhd v PFCE Integrated Plant and Project Sdn Bhd and another case [2020] MLJU; [2020] CLJU 2251 (HC) held that if the winning party (subcontractor) to an adjudication decision proves the following 3 conditions :

 

1. (i) The losing party (main contractor) failed to pay the adjudicated amount to the winning party;
2. (ii) The winning party made a written request pursuant to Section 30(1) of CIPAA to the principal (employer) to pay the adjudicated amount directly to the winning party; and
3. (iii) The principal did not comply with the winning party’s request and did not pay the adjudicated amount directly to the winning party,
4.  

the evidential burden concerning the condition in Section 30(5) of CIPAA i.e. there is a sum of money due or payable from the principal to the losing party at the time of the principal’s receipt of the winning party’s written request, shifts to the principal.

This is due to the application of Section 106 of the Evidence Act 1950 which stipulates that “When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him”.

Whether any sum of money is “due” or “payable” from the principal to the losing party at the time of the principal’s receipt of the winning party’s written request, will be “especially within the knowledge” of the principal. Accordingly, if the principal denies that no amount of money is “due” or “payable” from the principal to the losing party, the principal has the evidential burden to “prove” such a denial.

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About the Authors

Chew Jin Heng
Associate
Dispute Resolution
Halim Hong & Quek
jhchew@hhq.com.my

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Xean Chew
Pupil-in-Chambers
Dispute Resolution
Halim Hong & Quek
xean.chew@hhq.com.my

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