CASE UPDATE: Direct Payment from Principal under CIPAA cannot be contractually prohibited

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

In this case, the High Court confirmed that the Principal cannot seek refuge under the provision in the Construction Contract to prohibit the direct payment to any third parties to prevent the Winning Party of CIPAA Adjudication from seeking direct payment from the Principal pursuant to Section 30 of Construction Industry Payment and Adjudication Act 2012 (CIPAA).

As a result, the Winning Party may compel the Principal to make direct payment of the Adjudicated Sum as long as there is money due and payable from the Principal to the Losing Party, irrespective of whether the construction contract between the Principal and the Losing Party expressly prohibits such direct payment.

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

Background Facts

In this case, 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.

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 refused to make direct payment and argued, inter alia, that the Letter of Award between the Principal and the Main Contractor contains an express provision which prohibits the direct payment to any third party. 

Decision of High Court

Notwithstanding that the express terms in the Letter of Award which prohibits the direct payment / assignment or payment on behalf for third parties, the High Court held that the obligation of the Principal to pay the Successful Claimant in CIPAA Adjudication Proceeding is a mandatory statutory duty.

The fact that the Construction Contract expressly prohibits for the direct payment / assignment or payment on behalf for third parties does not exclude the Principal from such statutory duty.

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