Section 30 of the CIPAA – Direct Payment From Principal
by Karen Ng Yueh Ying, partner, Azman Davidson & Co
The Plaintiff in the case of HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another case [2021] 8 MLJ 347 made applications seeking for a direct payment from the Defendant, under Section 30 of the Construction Industry Payment and Adjudication Act 2012 (“the CIPAA”).
The Plaintiff (HSL Ground Engineering) was appointed by Civil Tech Sdn Bhd (“CTSB”) to carry out and complete works described as the supply of skilled labour, machinery and equipment for certain bored pile works for a project known as “The Construction and Completion of Proposed Sungai Besi-Ulu Kelang Elevated Expressway” (“the SUKE Project”). The main contractor of the SUKE Project was ML Sepakat & CHEC Joint Venture who in turn subcontracted the bored pile works under the SUKE Project to CHEC Construction (M) Sdn Bhd (“CCMSB”). CCMSB subsequently sub-subcontracted part of the bored pile works to the Defendant who in turn sub-sub-subcontracted SUKE-CA4 package on bored piling works to CTSB.
The Plaintiff duly carried out its works under the contract as well as rented equipment to CTSB pursuant to a rental agreement until CCMSB and the Defendant mutually terminated their sub-subcontract. As a result, the contract and the rental agreement between the Plaintiff and CTSB were also terminated accordingly. CTSB failed to fully pay the Plaintiff under the contract and failed to pay the Plaintiff any money under the rental agreement.
The Plaintiff initiated adjudication proceedings under the CIPAA against CTSB pursuant to the contract and the rental agreement separately and succeeded in both proceedings. Despite being served with the two adjudication decisions, CTSB failed to pay the Plaintiff.
The Plaintiff via its solicitor’s letters made written requests to the Defendant for direct payment of the relevant adjudicated amounts pursuant to the adjudication decisions. However, the Defendant failed to make any payment to the Plaintiff. Hence the applications by the Plaintiff.
The issues in this case were:
- Whether the Plaintiff has the statutory right to request for direct payment from the Defendant;
- Whether the failure of the Defendant to issue the mandatory notice under s30(2) of the CIPAA was fatal to its defence.
The learned High Court Judge held that the Plaintiff has the statutory right to request for direct payment from the Defendant since the Plaintiff has procured adjudication decisions against CTSB. The Plaintiff has pursuant to s 30(1) of the CIPAA served the request on the Defendant, hence the Defendant is required by s 30(2) of the CIPAA to serve a notice in writing to CTSB 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. It is mandatory on the Defendant to do so. The failure of the Defendant to issue the mandatory notice to CTSB without any reasonable explanation is likewise fatal to its defence against the Plaintiff.
Although the Defendant relied on s 30(5) of the CIPAA and contended that there is no money due or payable to CTSB and hence the Defendant need not make any direct payment to the Plaintiff as sought, the Court held that the statement of final account produced by the Defendant was unworthy and unreliable due to the lack of crucial supporting documents. The Court was satisfied that there was a substantial sum of unquantified and uncertified final value of work done as well as release of retention money which was not accounted by the Defendant.
In short, employers or contractors must take note and beware that if they are served with a written request for direct payment pursuant to section 30(1) of the CIPAA, they must be mindful that it is mandatory for them to issue a written notice to their contractor under section 30(2) requesting their contractor to show proof of payment and to state that, in the absence of proof of payment, direct payment would be made to the party who obtained the adjudication decision in its favour after the expiry of ten working days of the service of the section 30(2) notice. In the event they are certain that there is no money due or payable to their contractor, it will be prudent for them to issue a reply to the party who served them the Section 30(1) request for payment, stating that there is no money due or payable to the contractor. They should also beware that they will be required to substantiate their position in Court with evidence such as supporting documents that there is no money due or payable in the event an application is filed in Court for direct payment.