Pali PTP Sdn Bhd v Bond M&E Sdn Bhd and another appeal [2023] 6 MLJ 176

Pali PTP Sdn Bhd v Bond M&E Sdn Bhd and another appeal [2023] 6 MLJ 176

Court of Appeal

Building and Construction Law — Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’) — Payment dispute

1. The Appellant, Pali PTP Sdn Bhd (“Pali”), was the employer and principal of a building project. JEKS Engineering Sdn Bhd (“JEKS”) was appointed as the main contractor, and Bond M&E Sdn Bhd (“Bond”) was appointed as a nominated subcontractor for mechanical and electrical works.
2. Disputes arose over payments, resulting in two adjudications under the Construction Industry Payment and Adjudication Act 2012 [Act 746] (“CIPAA”). In the adjudication proceedings between Bond and JEKS, Bond succeeded and was awarded RM 3,387,425.44, together with interest and costs.
3. In the proceedings involving JEKS and Pali, JEKS was first awarded an adjudicated amount of RM 8,512,737.03. However, following applications under sections 28 and 15 of the CIPAA, the High Court revised the payable sum to RM 3,368,919.69, with interest at 7.75% per annum and partial costs.
4. Upon JEKS’s failure to satisfy the adjudicated sum, Bond issued a notice of direct payment to Pali pursuant to subsection 30(1) of the CIPAA, demanding payment of the adjudicated sum. However, Pali denied any liability, asserting that no amount was due or payable to JEKS and that Bond had not proven non-payment. Pali also relied on ongoing arbitration proceedings with JEKS involving substantial set-offs amounting to RM 22 million.
5. Bond subsequently filed an Originating Summons at the High Court, seeking direct payment under section 30. The High Court held that all statutory requirements were satisfied and ordered Pali to pay Bond the principal amount but excluded interest and costs, ruling that the phrase “adjudicated amount” referred solely to the principal sum. Pali appealed against the order (Appeal 314), while Bond cross-appealed (Appeal 399) against the exclusion of interest and costs.

1. Whether a subcontractor must prove non-payment by the main contractor before seeking payment directly from the principal under section 30 of the CIPAA.
2. Whether the term “adjudicated amount” under section 30 of the CIPAA extends to interest and costs, or is limited to the principal sum awarded.

(1)  Whether a subcontractor must prove non-payment by the main contractor before seeking payment directly from the principal under section 30 of the CIPAA.

(a) The Court of Appeal held that under section 30 of the CIPAA, a subcontractor is not required to provide affirmative proof that it has not been paid by the main contractor.

(b) By applying section 30, the Court found that non-payment is presumed once the subcontractor issues a valid written request for direct payment. The statutory burden then shifts to the principal to enquire with the main contractor and require proof of payment under subsection 30(2). If the principal fails to do so, it is obligated to make direct payment to the subcontractor.

(c)  The Court reasoned that this interpretation aligns with the object and purpose of the CIPAA to ensure prompt cash flow and efficient payment in the construction industry. Requiring subcontractors to produce proof of non-payment would defeat this legislative intent by creating unnecessary procedural hurdles.

(d)  Relying on PCom Pacific Sdn Bhd v Apex Communications Sdn Bhd & Anor [2020] MLJU 118 and HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd [2021] 8 MLJ 347, the Court reaffirmed that failure by a principal to issue the statutory notice under subsection 30(2) of the CIPAA amounts to acceptance of liability for direct payment.

(e)  Accordingly, Bond’s claim of non-payment was sufficient. Pali’s failure to verify or issue a statutory notice meant that Bond’s right to direct payment became enforceable, and Pali was statutorily bound to make payment. The Court emphasized that section 30 of the CIPAA must function effectively to ensure prompt payment and maintain cash flow in the construction industry.

(f)   Thus, Pali’s defence failed, and the Court affirmed that Bond was entitled to direct payment under section 30 of the CIPAA.

(2)  Whether the term “adjudicated amount” under section 30 of the CIPAA extends to interest and costs, or is limited to the principal sum awarded.

(a) The Court allowed Bond’s cross-appeal, holding that the High Court erred in excluding interest and costs from the meaning of “adjudicated amount”.

(b) Although the term “adjudicated amount” is not defined in section 4 of the CIPAA, the Court adopted a purposive interpretation in accordance with section 17A of the Interpretation Acts 1948 and 1967 [Act 388], which requires that legislation be interpreted in a manner that advances its underlying purpose and objective.

(c)  The Court referred to Tebin bin Mostapa v Hulba-Danyal bin Balia & Anor [2020] 4 MLJ 721, in which it was held that ambiguous statutory expressions must be construed in accordance with the intention of the legislature. The purpose of the CIPAA, as stated in Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd [2020] 1 MLJ 174, is to facilitate regular and timely payments and resolve payment disputes quickly and economically.

(d) The Court also cited ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd [2016] MLJU 1776, which explained that the CIPAA is a remedial statute intended to protect small contractors who are at risk of delayed or withheld payments.

(e)  Further, the Court examined the Parliamentary Debates during the Second and Third Readings of the Construction Industry Payment and Adjudication Bill 2011, which emphasized that the Act was enacted to safeguard subcontractors and ensure continuous cash flow.

(f)   Therefore, the Court held that “adjudicated amount” in section 30 of the CIPAA must be read holistically to include all monetary components awarded by the adjudicator.

1. In the appeal filed by Pali (Appeal 314), the Court of Appeal dismissed the case, deciding that Bond was not obliged to prove non-payment. The Court further held that Pali’s non-compliance with subsection 30(2) of the CIPAA rendered it liable for making direct payment.
2. In the appeal brought by Bond (Appeal 399), the Court of Appeal allowed the appeal and determined that the phrase “adjudicated amount” under section 30 of the CIPAA includes not only the principal amount but also interest and costs.
3. Pali was ordered to pay Bond the full sum awarded, together with costs of RM10,000 for each appeal.

1. A subcontractor is not required to prove non-payment. Once a valid notice is issued, the principal bears the burden to verify payment. Failure to do so makes the principal automatically liable.
2. The term “adjudicated amount” must be interpreted broadly to encompass all sums awarded, including the principal, interest, and costs, in order to ensure full and efficient enforcement of adjudication decisions.
3. The CIPAA is a remedial statute that must be construed purposively to achieve its objective of maintaining cash flow and protecting small contractors within the construction industry.