Sub-contractors Can Use CIPAA Adjudication Decisions To Wind Up Employers
by Chua Ai Li, Partner of Azman Davidson & Co.
Sub-contractors can now use adjudication decisions made under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) to wind up the employers or principals of the contractors of their projects.
The following are the brief facts and sequence of events in the High Court decisions of PCom Pacific Sdn Bhd v Apex Communications Sdn Bhd & Anor [2020] MLJU 118 and Apex Communications Sdn Bhd v PCom Pacific Sdn Bhd v [2020] MLJU 147:
(1) Apex Communications Sdn Bhd (“Apex”) is the main contractor for the Klang Valley MRT Station Project.
(2) Apex appointed Prestigexcel Engineering Sdn Bhd (“Prestigexcel”) as its subcontractor. Apex and Prestigexcel are connected through a common shareholder and another individual who acted as vice president of Apex and alternate director of Prestigexcel.
(3) Prestigexcel appointed PCom Pacific Sdn Bhd (“PCom”) as its subcontractor for the supply and installation of fibre optic cables and cable containment for the project.
(4) PCom obtained a CIPAA adjudication decision dated 6 December 2018 against Prestigexcel.
(5) PCom filed application to enforce the adjudication decision against Prestigexcel. On 25 June 2019, the High Court granted an order pursuant to Section 28 of CIPAA for the enforcement of the adjudication decision against Prestigexcel.
(6) In the meantime, PCom issued a notice dated 27 December 2018 to Apex requesting direct payment from Apex of the adjudicated sum on the basis that Apex is the principal of Prestigexcel. Apex issued a reply dated 5 March 2019 to inform PCom that no money was due from Apex to Prestigexcel.
(7) PCom filed an originating summons to seek an order for direct payment from Apex as principal pursuant to Section 30 of CIPAA. On 17 December 2019, the High Court allowed the application for direct payment to PCom from Apex.
(8) On 3 January 2020, PCOM served on Apex a statutory demand under Section 466(1) of the Companies Act 2016 for payment of the adjudicated sum based on the Court order dated 17 December 2019 within 21 days, failing which PCom may petition to wind up Apex.
(9) Apex filed an originating summons on 13 January 2020 to seek a court injunction to restrain PCom from presenting a winding up petition against it. On 3 February 2020, the High Court dismissed Apex’s application for injunction. This meant PCom could proceed to file a petition to wind up Apex.
Section 30 of CIPAA provides as follows:
“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).”
The High Court allowed PCom’s application for direct payment by Apex of the adjudicated sum in PCom Pacific Sdn Bhd v Apex Communications Sdn Bhd & Anor [2020] MLJU 118 because the High Court held that Apex had failed to discharge its burden of proving that there was no money due to Prestigexcel under Section 30(5) of CIPAA. Apex had failed to issue a mandatory notice to Prestigexcel as required under Section 30(2) of CIPAA, which the High Court held was fatal to Apex’s defence that there was no money due to Prestigexcel.
In Apex Communications Sdn Bhd v PCom Pacific Sdn Bhd v [2020] MLJU 147, the High Court held that the order given by the High Court on 17 December 2019 for Apex to pay the adjudicated sum to PCom rendered the debt indisputable. As such, the Court refused to grant an injunction to restrain PCom from winding up Apex.
As a result of the two High Court decisions, sub-contractors who obtain Court orders for direct payment by employers or principals under Section 30 of CIPAA will be holding lethal weapons. Sub-contractors have the right to wind up any employer or principal who fails to comply with Court orders made under Section 30 of CIPAA.