Case Update: Adjudicated Amount Includes Costs and Interest

PALI PTP SDN BHD v BOND M&E SDN BHD AND ANOTHER APPEAL [2023] MLJU 1918 (Court of Appeal)

Court of Appeal (Putrajaya)

Vazeer Alam Mydin Meera, Abu Bakar Jais and Lim Chong Fong JJCA

Civil Appeal No.: W-02(C)(A)-314-02 of 2021 and W-02(C)(A)-399-02 of 2021

1 September 2023

This case concerned 2 appeals:

(i) Appeal 314: Pali’s appeal against the High Court’s decision in ordering Pali (as Principal) to pay Bond (Nominated Sub-Contractor) the principal sum only (excluding costs and interest), pursuant to Bond’s application under section 30 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”); and

(ii) Appeal 399: Bond’s appeal against the High Court’s finding that the ‘adjudicated amount’ in section 30 of CIPAA excludes costs and interest.

The Court of Appeal dismissed Pali’s appeal as there is no necessity for the unpaid party (Bond) to provide affirmative evidence that Bond has not been paid by the Main Contractor. The Court found that the non-payment is presumed once Bond assets the same in the Notice of Direct Payment. The onus is then shifted to Pali to enquire from the Main Contractor whether Bond has been paid.

On the other hand, the Court of Appeal allowed Bond’s appeal and held that the High Court Judge had erred by excluding costs and interest from the ‘adjudicated amount’ in section 30 of CIPAA. In the absence of a definition for the phrase ‘adjudicated amount’ in CIPAA, the Court found that based on the purposive construction or interpretation of the Act, the term ought to include costs and interest.

Summary of the Grounds of Judgment

Background Facts

Pali is the employer of the Project. Pursuant to a letter of award dated 14.2.2017, Pali appointed JEKS as the Main Contractor for the Project. Subsequently, by a letter of acceptance dated 7.6.2017, JEKS appointed Bond as one of its Nominated Sub-Contractor (“NSC”).

During the Project, various payment disputes arose between the parties. These disputes resulted in CIPAA adjudication proceedings between Bond and JEKS, as well as JEKS and Pali.

In respect of the adjudication proceeding between Bond and JEKS, the learned adjudicator found in favour of Bond and ordered JEKS to pay Bond, among others, the adjudicated amount of RM3,387,425.44 (with interest and costs).

As between JEKS and Pali, the learned adjudicator allowed JEKS’s claim for the sum of RM8,512,737.03. Nevertheless, Pali’s setting aside application was allowed in part by the High Court. Hence, the High Court only enforced part of the adjudication decision and ordered Pali to pay JEKS the sum of RM3,368,919.69.

High Court’s Decision

As a result of having obtained the adjudication decision and JEKS’s failure to pay Bond accordingly, Bond issued the Notice of Direct Payment to Pali pursuant to section 30(1) of CIPAA, requesting for direct payment. However, Pali denied any obligation to pay on the ground that there is no money due and owing by Pali to JEKS.

On the issue of whether there is money due and owing by Pali to JEKS, Bond took the position that there is money due and owing as Pali has yet to pay JEKS the adjudicated amount pursuant to the adjudication decision that has been enforced. In opposition, Pali denied that there is money due and payable by them to JEKS pursuant to section 30(5) of CIPAA as the interpretation of that provision does not cover payments due under the adjudication decision, and ought to be limited to debts arising from the construction contract between them. Further, Pali contended that there is no conclusive debt since the amount is being seriously disputed in ongoing arbitration proceedings between Pali and JEKS.

The learned Judge having heard parties’ submission held, among others, that:

(i) Bond has fulfilled all the requirements to entitle it to invoke section 30 of CIPAA (for direct payment from Pali – the principal).

(ii) The adjudication proceedings between Bond and JEKS as well as JEKS and Pali arose due to disputes relating to the construction contracts in the same Project. Therefore, Pali’s contention that Bond is not entitled to seek recourse under section 30 of CIPAA premised on the adjudication decision between JEKS and Pali is misconceived.

(iii) In addition, Bond demonstrated that Pali failed to comply with section 30(2) of CIPAA in that Pali did not serve a written notice to JEKS to request proof of payment made to Bond upon receipt of Bond’s Notice of Direct Payment.

(iv) Nevertheless, the learned Judge held that the phrase ‘adjudicated amount’ in sections 30(1) and 30(3) of CIPAA does not include interest and costs. This is because the phrases ‘adjudication decision’, ‘adjudication amount’, ‘interest’ and ‘costs’ are used differently throughout the Act and hence, found that the legislature must have intended for those phrases to be construed in isolation and refer to different matters.

Court of Appeal’s Findings

Appeal 314

In Appeal 314, Pali’s main submission was that Bond failed to prove that JEKS has failed to make payment of the adjudicated amount to Bond prior to Bond issuing the Notice for Direct Payment to Pali. In addition, Pali also contended that the learned Judge was wrong in allowing Bond’s application that was wrongly based on the adjudication decision between Pali and JEKS when it should have been based on the construction contract between Pali and JEKS.

The Court of Appeal rejected Pali’s submissions and found, among others that:

(i) there is no necessity for the unpaid party Bond to provide affirmative evidence that Bond has not been paid by JEKS;

(ii) pursuant to sections 30(1) and 30(2) of CIPAA, the Court found that the non-payment is presumed and Bond only has to assert the same in the Notice of Direct Payment. Once that is done, the onus is then on Pali to enquire from JEKS whether Bond has been paid. Since Pali has failed to enquire, the Court concluded that Bond has not been paid; and

(iii) the Court is satisfied that at the time when the Notice of Direct Payment was issued, there were monies due and payable by Pali to JEKS based on the adjudication decision.

Appeal 399

As for Appeal 399, Bond’s primary contention was that the phrase ‘adjudicated amount’ in section 30 of CIPAA should be liberally construed to include interest and costs to protect and/or safeguard the payment rights of the small contractors and/or sub-contractors. On the other hand, Pali argued that learned Judge is correct in deciding that the phrase ‘adjudicated amount’ excluded interest and costs because if the legislature intended for ‘adjudicated amount’ to encompass interest and costs, this would have been expressly provided for.

The Court of Appeal agreed with Bond’s position and held that ‘adjudicated amount’ should include interest and costs. In coming to this conclusion, the Court found as follows:

(i) The learned Judge has erred in relying on the case of CT Indah Construction Sdn Bhd v. BHL Gemilang Sdn Bhd [2020] 1 CLJ 75 as the case does not specifically provide that the phrase ‘adjudicated amount’ in section 30 of CIPAA should include or exclude interest and costs.

(ii) The phrase ‘adjudicated amount’ has not been defined in section 4 of CIPAA. Considering this, the Court found that they are required to interpret and provide a reasonable meaning to the phrase. In following the case of Tebin Mostapa v. Hulba-Danyal Balia & Anor [2020] 7 CLJ 561, the Court opined that in the circumstances where a word and/or phrase used in the statute is unclear or ambiguous, such word or phrase will be construed in the light of the purpose and object of the statute. This is also in consonance with section 17A of the Interpretation Act 1948 and 1967 which requires the Courts to interpret the statute that would fulfils the purpose or object of the statute.

(iii) Given that CIPAA is meant to protect and/or safeguard the rights of the small contractors and/or sub-contractors, the Court took the position that the phrase ‘adjudicated amount’ should be interpreted to include interest and costs, so as to achieve and/or to further the statute’s purpose.

(iv) Although the phrases ‘adjudication decision’, ‘adjudication amount’, ‘interest’ and ‘costs’ are used differently throughout the Act, the Court held that there is no contradiction even if the phrase ‘adjudicated amount’ includes interest and costs. There is also nothing in CIPAA which prohibits the adjudicated amount to include interest and costs.

Comments

This decision is a welcomed clarification as it provides certainty on the following issues:

(i) an unpaid party can premise its section 30 CIPAA application on an adjudication decision between the contractor and principal; and

(ii) the term ‘adjudicated amount’ under section 30 CIPAA would include interest and costs.

About the author

Amy Hiew Kar Yi
Partner
Corporate Disputes, Construction, Projects & Energy
Harold & Lam Partnership
kssia@hhq.com.my