Chop Lee Huat Cermin & Aluminium Sdn Bhd v Government of Malaysia [2025] MLJU 3871 (High Court)

Facts

1. This Originating Summons (Enclosure 1) was filed by Chop Lee Huat Cermin & Aluminium Sdn Bhd (‘CLH’ or ‘Plaintiff’), a subcontractor, against the Government of Malaysia (‘GOM’ or ‘Defendant’), as the alleged principal, seeking to invoke the direct payment mechanism provided under section 30 CIPAA.
2. CLH sought this statutory relief having secured an adjudication decision against the non-paying party, Orangebeam Construction Sdn Bhd (‘OBC’), which subsequently failed to honour the adjudicated sum, a failure compounded by the commencement of winding-up proceedings against OBC, a few days prior to the issuance of the Adjudication Decision.
3. The resolution of this application, therefore, requires the Court to fundamentally determine two critical and contested inquiries pertaining to the scope and application of section 30 CIPAA: first, whether GOM qualifies as the requisite principal to the incorporated joint venture for the purposes of section 30; and second, whether monies were due or payable by GOM to Seri Libana PPC JV Sdn Bhd (‘JV Company’) at the material time of CLH’s written request.
4. The dispute originates from works performed on a construction project known as “Hospital Pendang, Kedah (Reka & Bina)” for the Ministry of Health (‘Main Contract’). The contractual hierarchy is as follows:
   1. By way of a contract dated 7.9.2018, GOM through the Director-General Department of Public Works (‘JKR’) had appointed the JV Company, as the main contractor under the Main Contract with JKR as the Project Director.
   2. OBC, allegedly a member company of the JV Company, subsequently sub-contracted CLH to perform design, fabrication, and installation of the external facade, canopy roof, and other related works (‘the Project’).
   3. It is undisputed that CLH completed its role as a subcontractor in the Project until the project’s completion.

Findings and Decision of the Court

1. The Court has decided to dismiss the Plaintiff’s application in Enclosure 1.
2. Section 30 concerns the procedure for a winning party in an adjudication proceeding to recover sums due from the principal of the losing party. Its application hinges upon fulfilling specific statutory prerequisites as described in the authoritative decision of Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020] CLJU 187 where Wong Kian Kheong J (now JCA) expounded the four foundational conditions necessary for the successful invocation of this direct payment mechanism:
   1. The party against whom the adjudication decision was made must have failed to make payment of the adjudicated amount.
   2. The winning party must have made a written request for payment of the adjudicated amount directly from the principal.
   3. There must be a sum of money due or payable by the principal to the non-paying party at the time the principal received the written request.
   4. The principal must subsequently fail to make the direct payment to the winning party.
3. In a regular construction context, this would have been a straightforward affair where the principal is usually the entity appointing the main contractor. However, the arrangement between GOM, the JV Company and CLH was not as simple as it appears to be.

Absence of Contractual Nexus: Insufficient Basis to Disregard the JV Entity

4. The rationale advanced by CLH rests on three main pillars related to this precedent: statutory interpretation, commercial reality, and the ‘unified entity’ doctrine. The following is illustrated by CLH in arguing that OBC and the JV Company operate on a “lateral footing” or as a single unified entity.
5. Meanwhile, GOM stresses that to disregard the contractual terms limiting subcontracting without prior consent and to enforce payment against GOM would frustrate the definition of ‘principal’ under CIPAA. Since GOM has no contract with OBC and made no payments to OBC, forcing GOM to pay CLH would leave GOM in a precarious position and unable to easily balance its books, as its contractual liability lay solely with the JV Company.
6. GOM argues that unlike the situation in Progress Centre, where the principal acknowledged and communicated interchangeably with both the main contractor and its subsidiary, GOM has never acknowledged, communicated with, or made payments to OBC. GOM maintains that it strictly deals with the JV Company and further submitted that in Progress Centre, the parties consistently admitted to operating as principal and agent, a key element absent here.
7. The Court is agreeable with GOM’s observations in this regard. Unlike the defendants in Progress Centre, GOM has consistently denied any form of communication with OBC and maintained that, at all material times, communication was always with the JV Company. This is corroborated in the Letter of Demand for Payment from the JV Company, IPC No. 62 paid to the JV Company and even in the contract itself within the notification address in clause 77.3 of the Main Contract which stipulated all communication must channelled to the JV Company’s address.

JV Company is an incorporated company, and is a separate legal entity from its members

8. CLH also attempts to circumvent the lack of direct contractual privity by asserting that the JV Company and OBC operated as one unified entity or that OBC acted as the agent for the JV Company. CLH advanced this argument based on shared characteristics, such as common directors, shareholders, and operating addresses.
9. However, this approach runs contrary to the established legal principles governing incorporated entities. GOM correctly highlighted that CLH cannot and should not be allowed to presumptively lift the corporate veil to allege that OBC and the JV Company are interchangeable. The decision in Malaysia Offshore Mobile Production (Labuan) Ltd v PCPP Operating Company Sdn Bhd & Ors [2018] MLJU 1913 by Noorin Badaruddin J (as she then was) explicitly supports the reluctance to lift the corporate veil of an incorporated joint venture.
10. In circumstances where the contract is concluded between a party and a separate legal entity and where the party consistently communicates with and issues payments to the latter, the bare assertions and presumptive arguments regarding shared characteristics are insufficient. It is not open to the courts to disregard the corporate veil purely on the ground that it is in the interests of justice to do so. The purpose of setting up an incorporated JV is to maintain a separate legal entity and insulating its members from liability. To agree to CLH’s proposition would be tantamount to imposing liability from individual acts of a member company against the whole corporate entity. This runs contrary to the very principles and protection afforded to a company enshrined in the Companies Act 2016.
11. There is no established contractual chain linking GOM to OBC, and thereafter to CLH. Therefore, it is the Court’s finding that CLH has failed to show that GOM is the principal of their subcontract under section 30.

There are no monies due or payable to JV Company by GOM

12. GOM affirms that all payments related to the relevant scope of works (Building Works, which included the alleged works done by CLH) had been made to the contracted party, the JV Company, and thus no payment is due and payable.
13. GOM has forwarded the Interim Payment Certificate No. 62 (IPC No. 62) dated 19.2.2025, along with annexures such as the Contract Ledger, Summary of Payment, Certificate of Practical Completion, and payment instructions. This documentation indicates that GOM had made a total payment of RM72,956,075.42 for the Building Works scope, being the entirety of the sum allocated for that scope, and that IPC No. 62, being the final interim payment certificate, shows that there is no more money due or payable to the JV Company under the Main Contract.
14. It is established that money had been paid to the main contractor for that particular part of the project. Given that the GOM was unaware of CLH’s involvement, and monies had already been disbursed to the party with whom GOM had contracted i.e. the JV Company, the documentation is sufficient to establish the fact that money has been paid and there is nothing left for direct payment to CLH.
15. The Plaintiff’s application for direct payment fails decisively, resting upon the cumulative failure to satisfy the foundational prerequisites of CIPAA. The Court finds that the Plaintiff failed on three material fronts: first, by failing to establish that the Defendant qualified as the requisite principal to OBC for the purposes of section 30; second, by failing to surmount the evidential burden confirming that monies were due or payable by the Defendant to the JV Company, thereby leaving the mandatory condition under section 30(5) unfulfilled; and third, by failing to meet the procedural hurdle of proper service required under section 30(1), which limited the statutory consequences that could be imposed upon the Defendant.