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20 April 2021
The sentiment that the "Construction Industry Payment and Adjudication Act [CIPAA] 2012 has been legislated to facilitate cash flow in the construction industry"(1) resonates nationally among judges and legal practitioners in the construction industry alike.
While most companies which have obtained an adjudication decision in their favour will choose to apply for said decision to be enforced via Section 28 of the CIPAA, the less-travelled road of demanding payment for an adjudication decision via Section 30 of the CIPAA is proving to be another effective recourse for payment. One such example is Chong Lek Engineering (CLE) Works Sdn Bhd's recent success in obtaining a high court order pursuant to Section 30 of the CIPAA.(2)
CLE was appointed as a subcontractor by Dekinjaya Builder Sdn Bhd (DBSB), the main contractor of a project. In the course of the project, CLE issued two payment certificates, among other things, for work done. This was subsequently met with partial or no payment being made by DBSB. CLE then brought two adjudication proceedings against DBSB (one for each certificate) and was eventually successful.
Nevertheless, CLE was faced with non-payment from DBSB and so sought to enforce the adjudication decisions in the high court pursuant to Section 28 of the CIPAA. At the same time, DBSB sought to set aside and stay the adjudication decisions and hence applied for the same in the high court.
While these applications were pending at the high court, CLE, with two adjudication decisions in tow, proceeded to make a written application for direct payment pursuant to Section 30 of the CIPAA to DBSB's principal, PFCE Integrated Plant and Project Sdn Bhd. In response, PFCE stated: "[k]indly be informed that at the time of the receipt by us of your letter, there is no money due or payable by us to Dekinjaya Builder Sdn Bhd."
CLE, in its response made via its solicitors, stated that PFCE's aversion was a bare statement and demanded that PFCE forward CLE's solicitors payment applications by DBSB to PFCE and all interim valuations issued by the quantity surveyor to DBSB, among other things. This was subsequently met with further denials by PFCE that it owed any sums to DBSB or had to comply with CLE's demand. Thus, CLE's application for direct payment pursuant to Section 30 of the CIPAA ensued.
Section 30 of the CIPAA reads as follows:
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).
Conditions for direct payment
Justice Wong Kian Kheong held that PFCE was obligated, as DBSB's principal, to pay the sums awarded under the adjudication decisions. The judgment was premised on CLE's application having satisfied four conditions:
The judge held that CLE had satisfied the first, second and fourth conditions on the balance of probabilities. Insofar as the third condition was concerned, the judge found that PFCE had failed to discharge the evidential onus to prove that no amount of money was due or payable from PFCE to DBSB when PFCE had received CLE's two demands. The judge's finding in this regard was premised on several factors, including PFCE's failure to exhibit proof of payment to DBSB on the invoices issued to it by DBSB. These invoices showed that the retention sum held by PFCE should have been released to DBSB.
For PFCE's director to assert in his affidavit that no sums were due and payable by PFCE to DBSB was, in the judge's opinion, inherently improbable in light of the above factors, among others. Accordingly, the judge drew an adverse inference against PFCE for suppressing all material evidence concerning the third condition.
Lifting of corporate veil
While DBSB and PFCE are separate entities, the question arose as to whether the court should lift the corporate veil between them. Drawing from Federal Court case law,(3) the judge held that such an exercise would be permitted where two conditions are satisfied:
In this case, the judge held that the two conditions had been satisfied as special circumstances existed – namely, the corporate veil should be lifted to prevent PFCE from evading its statutory liability to CLE under Section 30 of the CIPAA. Further, there was evidence to show that there was little to no distinction between DBSB and PFCE.
However, the judge concluded by holding that such sums payable under adjudication decisions do not include the adjudication costs awarded. In his decision, the judge determined that the expression "adjudicated amount" in Sections 30(1), 30(3) and 12(5) of the CIPAA differs from the expression "costs of the adjudication proceedings" in Section 18(1) and the expression employed by Parliament in Sections 28(1) and 28(2) of the CIPAA, whereby leave may be granted to "enforce the adjudication decision".
In view of the disparity in the wording employed across these sections, the judge opined that Parliament had not intended for the principal to pay the entire sum awarded in an adjudication decision under Section 30(3) of the CIPAA. In his judgment, the judge determined that had Parliament intended for this to be the case, it would have expressly stated in Section 30(3) of the CIPAA that the principal must pay both the adjudication amount and the adjudication costs or used the same wording in Sections 28(1) and 28(2) of the CIPAA.
In drafting Section 30 of the CIPAA, Parliament employed the words "may" in Section 30(1) and "shall" in Sections 30(2) and 30(3). A discretionary narrative appears to have been adopted in Section 30(1) as opposed to a mandatory narrative under Sections 30(2) and 30(3). It stands to reason that Parliament intended to give the unpaid party the discretion of choosing to make an application under Section 30 for direct payment. However, where the unpaid party chooses to do so, the principal will have an obligation to abide by the statutory requirements of Sections 30(2) and 30(3).
This case is pending appeal at the Court of Appeal. Nevertheless, the high court's decision demonstrates that the courts are inclined to read Section 30 of the CIPAA and give CIPAA its full legislative power.
In addition to CLE's application under Section 30 of the CIPAA, its enforcement applications under Section 28 of the CIPAA were successful.(5) Thus, unpaid parties need not make an either-or choice insofar as enforcement of adjudication decisions obtained in their favour is concerned, as both an enforcement application under Section 28 of the CIPAAA and an application for direct payment under Section 30 of the CIPAA can be pursued simultaneously.
For further information on this topic please contact Foo Joon Liang or Carissa How at Gan Partnership by telephone (+603 7931 7060) or email (firstname.lastname@example.org or email@example.com). The Gan Partnership website can be accessed at www.ganlaw.my.
(3) Solid Investment Ltd v Alcatel Lucent (M) Sdn Bhd  3 CLJ 73; Gurbachan Singh s/o Bagawan Singh v Vellasamy s/o Pennusamy  1 MLJ 773; and Giga Engineering & Construction Sdn Bhd v Yip Chee Seng & Sons Sdn Bhd  9 CLJ 537.
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