Introduction

In the recent High Court decision of Zedelta Sdn Bhd v Mayland Supreme Sdn Bhd [2023] MLJU 77, the High Court of Malaysia examined, amongst others, whether the principal of a construction project has proven on the balance of probabilities that it is not obligated under Section 30 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) to make direct payment to a subcontractor.

Brief Background Facts

Mayland Supreme Sdn Bhd (“Mayland”), had appointed CR Sea (Malaysia) Sdn Bhd (“CR Sea”) as the main contract for a housing project in Kuala Lumpur. Mayland had nominated, and CR Sea had later appointed, Zedelta Sdn Bhd (“Zedelta”) as the Nominated Sub-Contractor (NSC) to carry out the Electrical services for the Project.

CR Sea and Zedelta then became entangled in a dispute which led to Zedelta commencing adjudication proceeding against CR Sea pursuant to CIPAA 2012. In the adjudication proceeding, Zedelta claimed for payment for work done under the subcontract in the sum of RM 2,529,177.19, which was certified and valued by the project architect.

An adjudication decision was made in favour of Zedelta whereby the adjudicator had determined that the adjudicated sum of RM 2,529,177.19, interest, and cost ought to be paid by CR Sea to Zedelta.

As no payment was made by CR Sea to Zedelta, Zedelta then issued a letter to Mayland to request for direct payment of the adjudicated sum, interest and costs, as the principal of CR Sea pursuant to Section 30(1) CIPAA 2012 (“Written Request”).

Upon receiving the Written Request, Mayland sent a notice to CR Sea pursuant to Section 30(2) CIPAA 2012 (“Written Notice”) for CR Sea to show proof of payment that it has made to Zedelta. In the Written Notice, Mayland had stated that if CR Sea fails to show such payment proof, Mayland shall proceed to make direct payment to Zedelta. However, on the same date, Mayland wrote to Zedelta’s solicitors, refuting the liability to pay the demanded sum.

CR Sea has failed to furnish such proof of payment. However, Mayland did not pay the adjudicated amount directly to Zedelta as it said it would in the Written Notice. Therefore, Zedelta made an application in the High Court against Mayland pursuant to Section 30 CIPAA 2012 to claim for the payment of the adjudicated sum.

Mayland, in defending the application in the High Court, in essence argued that:

(a) Mayland had complied with the requisites of Section 30(2) CIPAA 2012 in having issued the Written Notice;

(b) It was made clear in Mayland’s letter to Zedelta’s solicitors that, in complying with the said statutory provision, was not making any admission of liability;

(c) In any event, Mayland has placed an exclusion in its letter to Zedelta’s solicitors which states that the act of replying the Notice of Request shall not be taken as an admission of liability of the adjudicated sum.

Findings of the High Court

The High Court referred to the case of Glocal Tech Engineering Sdn Bhd v Panzana Enterprise Sdn Bhd [2021] MLJU 474 which sets out the following conditions to be satisfied before Zedelta can invoke the remedy under Section 30 CIPAA 2012:

(a) there must be an adjudication decision whereby the winning party is entitled to an adjudicated amount which is to be paid by the losing party;

(b) the losing party has failed to pay the adjudicated amount to the winning party;

(c) the winning party has made a written request to the principal for the adjudicated amount to be paid directly to the winning party;

(d) the principal did not serve a written notice to the losing party to show proof that the losing party has paid the adjudicated amount to the winning party or having served such notice, the losing party has failed to furnish the proof of payment and in any event, the principal did not pay the adjudicated amount directly to the winning party; and

(e) there is money due or payable by the principal to the losing party at the time when the principal receives the written request for payment from the winning party

The High Court found that the requirements set out in paragraphs (a) – (d) above have been satisfied. Therefore, the only issue which arises for consideration is whether there is a sum of money due or payable from Mayland to CR Sea at the time when Mayland received the Written Request.

Whether There Is Any Money Due Or Payable From Mayland to CR Sea?

On the burden of proof, the High Court found that, following Zedelta’s averment that there is money due or owing by Mayland to CR Sea, the evidential burden then lies on Mayland to prove otherwise on the balance of probabilities.

The High Court found that Mayland has not discharged the evidential burden to prove that there is no money due or payable to CR Sea at the time of its receipt of the Written Request because:

(a) Mayland, in its affidavit in reply, averred that Mayland does not owe any amount to CR Sea, and that Mayland is said to be in the midst of referring the dispute that it has with CR Sea to arbitration. However, no notice of arbitration, correspondence or any documents was exhibited to support these averments;

(b) Mayland had never informed Zedelta that there is no money due or payable by Mayland to CR Sea;

(c) In the Written Notice, Mayland had stated its commitment that it shall make direct payment to Zedelta upon expiry of the 10 working days deadline. However, Mayland did not do so. Mayland’s duty under Section 30 CIPAA 2012 does not end with the issuance of the Written Notice, as there is mandatory obligation on a principal to pay the adjudicated sum directly to a subcontractor if no proof of payment is forthcoming from the contractor; and

(d) Mayland cannot be allowed to claim that it is attempting to facilitate the direct payment process and then later, to change its stance by giving excuses in not complying with the mandatory obligation under Section 30(3) CIPAA 2012.

Comment

The purpose of Section 30 of CIPAA 2012 is to enable a successful party in an adjudication to obtain payment from the principal of an unsuccessful party. Whilst most parties who have obtained an adjudication decision in their favour would commonly opt to apply for the adjudication decision to be enforced via section 28 of the CIPAA 2012, 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.

The High Court’s decision in this case had certainly provided a clear illustration on the high threshold in defending an application under Section 30 CIPAA 2012. A mere “exclusion” statement denying liability would not be sufficient in showing that the principal is not liable to make direct payment to the sub-contractor.

About the Author

Ooi Hui Ying
Senior Associate
Arbitration, Construction & Engineering Disputes
Harold & Lam Partnership
huiying@hlplawyers.com