Congratulations on obtaining a favourable Adjudication Decision under the Construction Industry Payment and Adjudication Act 2012 (CIPAA)! As the Winning Party, you now have several avenues to securing the adjudicated amount.
Let’s explore the steps and options available to you:
1. Enforcing the Adjudication Decision
- This involves taking steps to register the Adjudication Decision as an order of the High Court,[1] allowing for execution proceedings to recover the adjudicated amount.
2. Negotiating a settlement
- Engage in discussions with the Losing Party to reach a mutually agreeable settlement, potentially avoiding further legal proceedings.
3. Pursuing the claim in court or arbitration proceedings
- If necessary, you can escalate the matter to court or arbitration to further litigate/arbitrate the subject matter.
4. Filing a winding-up petition
- In certain cases, you may consider filing a winding-up petition against the Losing Party on the ground that the Losing Party was unable to pay its debt (adjudicated amount).[2]
5. Suspending the performance
- Temporarily suspending work or reduce the rate of progress if the adjudicated amount remains unpaid, protecting your interests until the adjudicated amount is received.[3]
6. Requesting direct payment from the Principal of the Losing Party
- In the event that the Losing Party fails to pay, the Winning Party may request payment directly from the Principal.[4]
In this Article, we will delve into the Winning Party’s entitlement to seek direct payment from the Principal of the Losing Party.
How to request direct payment from the Principal?
There are four (4) requirements to be fulfilled by the Winning Party in order to request direct payment from the Principal:[5]
(i) The Losing Party’s failure to pay
- The Losing Party must have failed to pay the adjudicated amount to the Winning Party.[6]
(ii) Written request to the Principal
- The Winning Party must send a written request to the Principal, asking for payment of the adjudicated amount.[7]
(iii) Sum due from the Principal to the Losing Party
- At the time of receiving the Winning Party’s request, there must be a sum of money due and owing from the Principal to the Losing Party.[8]
(iv) Principal’s non-compliance
- Upon receiving the Winning Party’s request, the Principal is required to send a written notice to the Losing Party to request proof of payment and to state that direct payment would be made after the expiry of 10 working days of the said notice.[9]
- If the Principal fails to comply with the Winning Party’s request and does not pay the adjudicated amount directly to the Winning Party, the conditions for direct payment are met.[10]
Is the Principal liable to pay for the interest and cost in the Adjudication Decision?
Indeed, the Principal is liable for the interest and costs awarded under the Adjudication decision. The term “adjudicated amount” in Section 30 of CIPAA encompasses the adjudicated principal sum, interest, and costs.[11]
Does the Principal have the right to refuse to pay the Winning Party upon receiving the request for direct payment?
The Principal may refuse to pay the Winning Party if the Principal is able to establish that there is no amount due or payable by the Principal to the Losing Party.[12]
What if the amount due or payable by the Principal to the Losing Party is under a different project?
For the Winning Party’s direct payment request to be valid, the amount owed by the Principal to the Losing Party must be under the same chain of construction contracts.[13]
Advantages of direct payment request
1. Faster resolution
- Direct payment request bypasses the Losing Party, potentially speeding up the payment process.
2. Protects against non-payment
- This option helps secure payment directly from the Principal, reducing the risk of non-payment by the Losing Party.
3. Legal safeguard
- The remedies under Section 30 CIPAA made available to the Winning Party can be applied concurrently or in combination with one of the other by the Winning Party.
Suspending/slowing down the performance
Additionally, under CIPAA, the Winning Party is granted the right to suspend the performance or reduce the rate of progress of performance of the work if the Losing Party fails to pay the adjudicated amount.[14] It is a significant departure from the common law rule, where contractors typically had no right to suspend work due to non-payment.[15] It stands as a commendable recourse for contractors facing cash flow challenges.
Effect of Section 29 CIPAA
If the Winning Party fulfils the requirements laid down in Section 29 CIPAA, the Winning Party is not considered in breach of the contractor for suspending performance and is entitled to, among others, be granted a fair and reasonable extension of time and any loss and expenses incurred due to the suspension.[16]
Ending Note
In conclusion, as the Winning Party under CIPAA, you have various avenues to secure the adjudicated amount, including direct payment from the Principal or suspending performance.
Before proceeding with any action, it is crucial to ensure that all requirements under CIPAA are fulfilled.
If you have further questions or require assistance in navigating these options, feel free to contact our Partner, Mr. Kevin Richard Nathan (kevin@nzchambers.com) or Senior Associate, Ms. Elise Tam (elise@nzchambers.com). Conversely, if you are the Principal facing a direct payment request, we are here to help safeguard your interests and guide you through the process.
Published Date: 29 April 2024
References:
[1] Section 28(1) of the Construction Industry Payment and Adjudication Act 2012
[2] Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 CLJ 499
[3] Section 29(1) of the Construction Industry Payment and Adjudication Act 2012
[4] Section 30(1) of the Construction Industry Payment and Adjudication Act 2012
[5] Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Ors [2020] 1 LNS 187
[6] Section 30(1) of the Construction Industry Payment and Adjudication Act 2012
[7] Section 30(1) of the Construction Industry Payment and Adjudication Act 2012
[8] Section 30(5) of the Construction Industry Payment and Adjudication Act 2012
[9] Section 30(2) of the Construction Industry Payment and Adjudication Act 2012
[10] Section 30(3) of the Construction Industry Payment and Adjudication Act 2012
[11] Pali PTP Sdn Bhd v Bond M&E Sdn Bhd & Another Appeal [2023] 9 CLJ 740
[12] Section 30(5) of the Construction Industry Payment and Adjudication Act 2012
[13] HMN Nadhir Sdn Bhd v Jabatan Kerja Raya Malaysia & Ors [2018] MLJU 1859
[14] Section 29(1) of the Construction Industry Payment and Adjudication Act 2012
[15] Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd & Another Appeal [2018] 2 CLJ 163; Kah Seng Construction Sdn Bhd v Selsin Development Sdn Bhd [1997] 1 CLJ Supp 448
[16] Section 29(4) of the Construction Industry Payment and Adjudication Act 2012