CASE UPDATE: Enforcement of CIPAA Decision by Direct Payment before Certification

B Cor Geotechnics Sdn Bhd v Panzana Enterprise Sdn Bhd [2019] MLJU 1030

Upon the delivery of an Adjudication Decision, the Winning Party may enforce the Adjudication Decision by requesting for direct payment from the Principal of Losing Party pursuant to Section 30 of Construction Industry Payment and Adjudication Act 2012 (CIPAA). 

Read more at: Enforcement of CIPAA Adjudication Decision

The Principal is statutory bound to make direct payment to the Winning Party if there is money due or payable by the Principal to the Losing Party at the time of the receipt of the written request for direct payment. 

Section 30 of CIPAA 2012:

(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).

It is the conventional understanding that the money will only due and payable after the Principal had certified the amount / issued the Interim Payment Certificate (“IPC“). However, it appears that this may no longer be true.

In B Cor Geotechnics Sdn Bhd v Panzana Enterprise Sdn Bhd [2019] MLJU 1030, the High Court held that the money is already due and payable before the issuance / certification of the Payment Certificate and the Court will draw inference from other facts in examining whether the money is due and payable.

Background Facts

In this case, the Main Contractor had subcontracted the structure and piling work to the Subcontractor.

Subsequently, a payment dispute arose between the parties whereby the Subcontractor alleged that the Main Contractor had failed to make payment for the work done. As a result, the Subcontractor initiated a CIPAA claim against the Main Contractor.

The Adjudication Decision was delivered in favour of the Subcontractor for the sum of RM9,694,804.18.

In the interim, the Main Contractor had requested the Principal to arrange for direct payment to 3 of its suppliers for the amount of RM2,821,500.00.

Subsequently, the Subcontractor invoked Section 30 of CIPAA to request for direct payment from the Principal by sending a written request to the Principal.

The Principal responded to the written request and stated that there was no money due and payable as at the date of written request for direct payment.

Thereafter, the Principal issued Interim Payment Certificate No. 21 for the sum of RM2,821,500.00 which will be set-off by the direct payment to the 3 suppliers pursuant to the Main Contractor’s request.

The Principal took the position that, as at the date of receipt of the written request for direct payment, the Principal had already paid the Main Contractor based on the latest payment certificate, which is Interim Payment Certificate No. 20.

The amount under Interim Payment Certificate No. 21 was only due and payable upon its certification. At the time of written request for direct payment, Interim Payment Certificate No. 21 was not yet issued, as such, there was no money due and payable by the Principal to the Main Contractor.

Decision of High Court

The High Court rejected the Principal’s argument and held the sum of RM2,821,500.00 was due and payable as at the date of written request for direct payment, i.e. before the issuance of Interim Payment Certificate No. 21.

The High Court held that this is evinced by the fact that the Principal had made direct payment to the 3 suppliers pursuant to the letters of Main Contractor.

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