(Section 30 CIPAA 2012) Overview of Authorities on Direct Payment from Principal

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. Section 30 of CIPAA does not require there to be a contractual relationship, but only that there is a principal.
2. 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. 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. 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.

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. 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. 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. 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.

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. 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. The losing party has failed to pay the adjudicated amount to the winning party;
3. The winning party has made a written request to the principal for the adjudicated amount to be paid directly to the winning party;
4. 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. 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

Please click here to read the full article: https://hhq.com.my/posts/section-30-cipaa-2012-overview-of-authorities-on-direct-payment-from-principal/ 

About the Authors

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

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

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