The Malaysian Construction Industry Payment And Adjudication Act, 2012 [“CIPAA”] allows a sub-contractor who has obtained an adjudication decision in their favour to claim against the principal of the construction project concerned.
Ordinarily, the sub-contractor would enforce their favourable adjudication decision against the main contractor but there may be instances where it would be more advantageous pursuing for their sums due against the principal. A “principal” is one that employed or appointed the main contractor.
There are several pre-conditions that must be fulfilled under section 30 of CIPAA before the principal becomes obligated to pay the sub-contractor. However, what happens when the main contractor has been wound up? Could the principal successfully argue that any monies paid to the sub-contractor would be an ‘undue preference’ over the main contractor’s creditors and hence, refuse payment?
This issue was addressed in the Court of Appeal’s decision of CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd  MLJU 1215 [“CT Indah”].
In CT Indah, the sub-contractor commenced adjudication proceeding under CIPAA against the main contractor for outstanding sums in respect of works done. The Adjudicator decided in favour of the sub-contractor and the sum of RM9,065,335.67 together with interest and costs [the “Sums”] was awarded to the sub-contractor. The Sums was to be paid by 21.11.2016.
However, the main contractor failed to pay the Sums.
The sub-contractor then issued a notice under section 30 of CIPAA to request to the principal for direct payment of the Adjudicated Sum. The principal failed to comply with the requirements under section 30 of CIPAA.
Notwithstanding, a winding-up petition dated 13.6.2018 was presented against the main contractor by a third party and the main contractor was subsequently wound up.
The High Court rejected the sub-contractor’s argument that section 30 of CIPAA created an independent liability on the principal and would not offend the preferential treatment in the winding-up regime.
Thus, the sub-contractor would not be able to avail themselves to the remedy afforded under Section 30 of CIPAA. Dissatisfied with the decision, the sub-contractor appealed to the Court of Appeal.
Court of Appeal:
In allowing the sub-contractor’s appeal, the Court of Appeal held that:-
Section 30 of CIPAA, read plainly, created an independent statutory obligation or liability on the principal to pay; and
once payment is made by the principal to the sub-contractor, a debt is then created against the main contractor (now wound up) that the principal ought to recover from.
The Court of Appeal relied on the decisions of:-
- Glow Heating Limited v The Eastern Health Board, Patrick Rooney and Building and Engineering Limited (In Liquidation)  IR 110 which held that a contract provision that required direct payment from the principal created an independent liability on the principal, notwithstanding the main contractor was in liquidation;
- Golden Sand Marble Factory Ltd v Easy Success Enterprise Ltd & Anor  2 HKC 356 which held that no money in the dispute vested in the wound-up main contractor and hence, did not form part of the of the fund for distribution to creditors;
- Veitchi Co v Crowley Russell & Co  SC 225 that held a supervening liquidation did not render unenforceable the terms or requirement of payments from the principal or receipt of further certificates; and
- Re Wilkinson Ex parte Fowler  2 KB 713 that held bankruptcy did not annul or revoke the clause empowering the engineer to order for direct payment.
Analysis and Development:
The Court of Appeal’s decision in CT Indah was subsequently adopted in Cabnet Systems [M] Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor  MLJU 311 (“Cabnet”).
Section 30 of CIPAA appears to be a useful aid for sub-contractors to secure their payments from principals and at this juncture, the Malaysian Courts have considered it as an independent obligation on principals to pay. It must be pointed that the section 30 of CIPAA is qualified in such obligation to pay would only arise if the conditions stipulated under section 30 of CIPAA are met, and crucially that there is still money due and payable by the principal to the main contractor.