Section 30 CIPAA provides as follows:
“(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 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).”
If the losing party fails to make payment after a CIPAA decision, the winning party may request for payment from “the principal of” the losing party.
There is no mention in s.30 that this remedy is only available after the winning party obtains an enforcement order under s.28. Therefore, it would seem that the demand for direct payment can be made immediately without waiting for the CIPAA decision to be enforced as a High Court order.
However, the demand for direct payment can only be made to the principal of the losing party. In other words, the demand for direct payment may not be effective further up the chain of construction contracts. If there are multiple levels of sub-contracting, then the winning party in CIPAA can only claim against the direct principal of the losing party, i.e. one level removed.
Upon receipt of the written request for direct payment, the principal of the losing party shall write to the losing party to show proof that the losing party had paid the adjudicated amount, otherwise direct payment will be made after 10 working days.
The principal does not seem to have any right to question the merits (or demerits) of the CIPAA decision. The amount owed by the principal to the losing party does not even have to be related to the amount claimed by the winning party.
As long as a notice is issued and there has been no payment made, then the principal “shall” issue a notice to the losing party and inform the losing party that it will make direct payment in 10 working days. The use of the word “shall” has always been interpreted to be mandatory in law.
If the losing party fails to show proof that payment was made pursuant to the CIPAA decision, then the principal “shall” make direct payment.
The losing party does not seem entitled to give reasons for non-payment. Neither is the principal entitled to consider any defences of the losing party (whether justified or otherwise). Once again, the use of the word “shall” indicates that it is compulsory.
Any monies paid by the principal to the winning party can be recovered from the losing party either as a debt or as a set-off from other monies owed to the losing party by the principal.
Most standard form contracts have a contractual procedure for set-off. However, if a set-off is carried out pursuant to s.30(4) CIPAA, the contractual procedures may not need to be complied with since it would be a lawful set-off under the law.
In order to be fair to the principal, s.30(5) provides that the principal does not need to comply with this section if there is no money owed by the principal to the losing party. Otherwise, it would be an unfair transference of risk from the sub-contractor (winning party) to the principal who has in fact paid all monies owed to the losing party in full.
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