Payment Claim Under CIPAA 2012

by Karen Ng Yueh Ying, Partner, Messrs. Yatiswara, Ng & Chan

The issuance of a valid payment claim is the first step for an unpaid party to claim payment against a non-paying party under a construction contract in an adjudication proceeding commenced under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”).            

Question: What are the requirements to be fulfilled when issuing a valid payment claim under the CIPAA 2012?

The answer is in Section 5 of CIPAA 2012, which provides as follows:

“1) An unpaid party may serve a payment claim on a non-paying party for payment pursuant to a construction contract.

2) The payment claim shall be in writing and shall include –

1. The amount claimed and due date for payment of the amount claimed;
2. Details to identify the cause of action including the provision in the construction contract to which the payment relates;
3. Description of the work or services to which the payment relates; and
4. A statement that it is made under this Act.”

An “Unpaid party” is defined in Section 4 of CIPAA 2012 as “a party who claims payment of a sum which has not been paid in whole or in part under a construction contract”; whereas a “non-paying party” is defined as “a party against whom a payment claim is made pursuant to a construction contract”.

It can be deduced from the provisions set out above that one of the requirements to be fulfilled before a payment claim can be issued by an unpaid party to a non-paying party under the CIPAA 2012 is that the sum claimed by the unpaid party must be due and that the non-paying party has failed to pay the said sum in whole or in part.

Recently, the Court of Appeal in the case of Puncak Niaga Construction Sdn Bhd v Mersing Construction & Engineering Sdn Bhd [2022] MLJU 2107 discussed this requirement.

Brief Facts

Mersing Construction & Engineering Sdn Bhd (“Mersing”) was a subcontractor of Puncak Niaga Construction Sdn Bhd (“Puncak Niaga”). Mersing served a payment claim on Puncak Niaga claiming for payment for work done.

The payment claim consisted of, amongst others, monthly interim claims submitted by Mersing to Puncak Niaga for certification and payment. However, the said interim claims were not certified and were not paid by Puncak Niaga.

Mersing then discovered that there were errors in some of the claim items claimed in the said monthly interim claims. It then unilaterally rectified these claim items (“rectified claims”) and presented these rectified claims as part of its payment claim to Puncak Niaga.  

Puncak Niaga contended that Mersing cannot by-pass the claims verification and certification process required under the terms and conditions of the construction contract and pursue these rectified claims as part of the payment claim under CIPAA 2012. Puncak Niaga further contended that these claims were “premature” and were not due. As such, it contended that Mersing was not an “unpaid party” and Puncak Niaga was not a “non-paying party” as defined in CIPAA 2012.

Decision

The Court of Appeal did not agree with Puncak Niaga’s arguments. It held, amongst others, that:

1. Mersing’s interim claims and interim certificates are not final nor conclusive. Any error in the interim claims is capable of being rectified by Mersing before the completion of the works. The certification process is not at an end and attains finality when the final certificate is issued.
2. An adjudicator has the power to review or revise any certificate. The employer’s failure or refusal to certify the claim does not take the matter out of the ambit of CIPAA 2012.
3. The full details of claim have been stipulated in the payment claim. It was obvious that the rectified claims relate to work done, for which claims had previously been made to Puncak Niaga but were not certified. Thus, when the rectified claims were made as part of the payment claim, they were not new claims but a scaled down version of the earlier claims.
4. The rectified claims were merely a “refinement” of the previously submitted monthly claims.

Commentary

This case sets out several important principles. One in particular is that an employer’s failure or refusal to certify a claim – which is not an uncommon sight in construction disputes – does not prevent the contractor from pursuing its uncertified claims by way of adjudication under the CIPAA 2012. The mere fact that a contractor’s claim has not been certified does not mean that its claim is premature or that it is not due.

Conversely, this case also serves as a good reminder to contractors to be mindful that if they wish to pursue their claims in adjudication under the CIPAA 2012, their intended claims must not be premature in view of the requirements under CIPAA 2012. In other words, their claims must be due, even if it has not been certified, and has not been paid by the non-paying party.