“The Construction Industry Payment and Adjudication Act 2012 (CIPAA) has been legislated to facilitate cash flow in the construction industry.”[1] – a sentiment readily resonated nationally amongst judges and legal practitioners in the construction industry alike, amongst others.
Whilst most companies who have obtained an adjudication decision in their favour would more commonly choose to apply for the said decision to be enforced via section 28 of the CIPAA, the road less travelled of demanding payment for the adjudication decision via section 30 of the CIPAA is now proving to be another effective recourse for payment. One such traveller is Chong Lek Engineering Works Sdn Bhd (“CLE”), who recently obtained an order from the High Court pursuant to section 30 of the CIPAA[2].
A Tale of Two Certificates
CLE was appointed as the sub-contractor by the main contractor, Dekinjaya Builder Sdn Bhd (“DBSB”), for a project. In the course of the project, CLE issued two payment certificates, amongst others, for work done. This was subsequently met with partial or no payment being made by DBSB. CLE then brought two adjudication proceedings against DBSB (one for each certificate) and was eventually successful.
Nevertheless, CLE was faced with non-payment from DBSB and thus sought to enforce the adjudication decisions in the High Court pursuant to section 28 of the CIPAA. In a parallel vein, DBSB sought to set aside and stay the adjudication decisions and hence applied for the same in the High Court.
Whilst these applications were still pending before the High Court, CLE, with two adjudication decisions in tow, proceeded to make a written application for direct payment pursuant to section 30 of the CIPAA to the principal of DBSB, PFCE Integrated Plant and Project Sdn Bhd (“PFCE”). In response, PFCE stated:
“Kindly be informed that at the time of the receipt by us of your letter, there is no money due or payable by us to Dekinjaya Builder Sdn Bhd.”
CLE, in its response made via its solicitors, stated that PFCE’s aversion was a bare statement, and demanded that PFCE forward to CLE’s solicitors payment applications by DBSB to PFCE, and all interim valuations issued by the Quantity Surveyor to DBSB, amongst others. This was subsequently met with further denials by PFCE that any sums were due by PFCE to DBSB and that PFCE was obligated to comply with CLE’s demand. Thus, CLE’s application for direct payment pursuant to section 30 of the CIPAA ensued.
The High Court’s Decision
Section 30 of the CIPAA reads as follows:
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).
Conditions for Direct Payment
The learned High Court Judge, Wong Kian Keong J, held that PFCE was obligated as DBSB’s principal to pay the sums awarded under the adjudication decisions. His Lordship’s judgment was premised on CLE’s application having satisfied four conditions, namely that:
- DBSB had failed to pay the adjudicated amount to CLE;
- CLE had made a written request for PFCE to pay the adjudicated amount directly to CLE;
- there was a sum of money due from PFCE to DBSB; and
- PFCE failed to comply with CLE’s written request and did not pay the adjudicated amount directly to CLE.
The learned Judge held that CLE had satisfied the first, second, and fourth conditions above, on a balance of probabilities. Insofar as the third condition is concerned, His Lordship found that PFCE had failed to discharge the evidential onus to prove that no amount of money was “due” or “payable” from PFCE to DBSB at the time of PFCE’s receipt of CLE’s two demands.
His Lordship’s finding in this regard was premised on several factors, not the least of which being that PFCE had failed to exhibit proof of payment by PFCE to DBSB on the invoices issued by the latter to the former. These invoices showed that the retention sum held by PFCE should have been released to DBSB.
For PFCE’s director to assert in his affidavit that no sums were due and payable by PFCE to DBSB was, in His Lordship’s view, inherently improbable in light of the above, amongst others. Accordingly, His Lordship drew an adverse inference against PFCE for suppressing all material evidence concerning the third condition.
Lifting of the Corporate Veil
Whilst DBSB and PFCE are separate entities, the question arose as to whether the Court should lift the corporate veil between the two entities. Drawing from the Federal Court’s judgments in Solid Investment Ltd v Alcatel Lucent (M) Sdn Bhd[3], Gurbachan Singh s/o Bagawan Singh & Ors v Vellasamy s/o Pennusamy & Ors[4], and Giga Engineering & Construction Sdn Bhd v Yip Chee Seng & Sons Sdn Bhd & Anor[5], the learned Judge held that such an exercise would be permitted where two conditions are satisfied, namely:
- There exist special circumstances to pierce or lift the corporate veil such as:
a) the commission of actual fraud or common law fraud;
b) equitable or constructive fraud;
c) to prevent an evasion of liability; or
d) to prevent an abuse of corporate personality; and - The piercing or lifting of the corporate veil is in the interest of justice.[6]
The learned Judge held that the two conditions had been satisfied, as there existed special circumstances — i.e. the corporate veil should be lifted to prevent PFCE from evading its statutory liability to CLE under section 30 of the CIPAA. Further, there was evidence to show that there was little to no distinction between DBSB and PFCE.
However, His Lordship concluded his judgment by holding that such sums payable under the adjudication decisions do not include the adjudication costs awarded. In His Lordship’s view, the expression “adjudicated amount” in sections 30(1), 30(3), and 12(5) of the CIPAA differed from the expression “costs of the adjudication proceedings” employed in section 18(1), and the expression used by Parliament in sections 28(1) and 28(2) of the CIPAA, whereby leave may be granted to “enforce the adjudication decision.”
In view of the disparity in the wording employed across these various sections, His Lordship opined that Parliament did not intend for the principal to pay the entire sum awarded in an adjudication decision under section 30(3) of the CIPAA. In His Lordship’s judgment, had Parliament intended for this to be the case, it would have expressly stated in section 30(3) that the principal shall pay both the adjudicated amount and the adjudication costs, or used the same wording as in sections 28(1) and 28(2) of the CIPAA.
Comment
Parliament, in drafting section 30 of the CIPAA, has employed the word “may” in section 30(1) and “shall” in sections 30(2) and 30(3). A discretionary narrative appears to have been adopted in section 30(1) as opposed to the mandatory narrative under sections 30(2) and 30(3). It stands to reason that Parliament intended to give the unpaid party the discretion to make an application under section 30 for direct payment. However, where the unpaid party has chosen to do so, the principal would have a mandatory obligation to abide by the statutory requirements of sections 30(2) and 30(3).
At the time of writing, this case is pending appeal at the Court of Appeal. Nevertheless, the High Court’s decision demonstrates that courts are inclined to interpret section 30 of the CIPAA in a manner that gives the statute its bite.
It is also worth noting that in addition to CLE’s application under section 30 of the CIPAA, CLE’s enforcement applications under section 28, as mentioned above, were successful.[7] Thus, the choices for an unpaid party in enforcing adjudication decisions obtained in their favour would not be an either-or situation, as both the enforcement application under section 28 and the application for direct payment under section 30 can be pursued simultaneously.
For any enquiries, please contact the authors:
Foo Joon Liang FCIArb, FSIArb, FHKIArb
Partner
Gan Partnership
E: joonliang@ganlaw.my
Carissa How
Associate
Gan Partnership
E: carissa@ganlaw.my
[1] Dekinjaya Builder Sdn Bhd v Chong Lek Engineering Works Sdn Bhd and another case [2020] MLJU 2455, para 20.
[2] Chong Lek Engineering Works Sdn Bhd v PFCE Integrated Plant and Project Sdn Bhd and another case [2020] MLJU 2389.
[3] [2014] 3 CLJ 73.
[4] [2015] 1 MLJ 773.
[5] [2015] 9 CLJ 537.
[6] See also: Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor [1980] 1 MLJ 109; Tan Guan Eng v Ng Kweng Hee & Ors [1992] 1 MLJ 487.
[7] Dekinjaya Builder Sdn Bhd v Chong Lek Engineering Works Sdn Bhd and another case [2020] MLJU 2455.
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at the date of publication on 6 April 2021. This edited version is republished on 13 April 2021.
