S30 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) provides that where a subcontractor (“SC”) has obtained a favourable decision in adjudication against the main contractor (“MC”), the SC may make a written request directly to the Employer (“E”) in order to receive direct payment.
The E is then obliged to make direct payment to the SC if the MC fails to prove that it has paid on the adjudication decision.
A practical problem arises when the E asserts that there is no money due to the MC. This effectively renders the claim by the SC to be meaningless.
Thankfully, the case of Chong Lek Engineering Works Sdn Bhd v PFCE Integrated Plant and Project Sdn Bhd and another case (2020) helps alleviate the helplessness of SCs under such circumstance. In Chong Lek, the SC made a claim for direct payment under s30 CIPAA 2012. In reply, the E simply asserted that there was no money due and payable.
The learned Wong Kian Kheong J. held that it was inadequate for the E to simply make a bare assertion. According to the learned Judge, there are 4 conditions to be fulfilled in order to invoke s30 CIPAA 2012, namely:
- The MC failed to pay the adjudicated sum to the SC;
- The SC wrote to the E for direct payment under s30 CIPAA 2012;
- There is a sum of money due by the E to the MC; and
- The E failed to make direct payment as requested.
Importantly, the learned Judge held that once conditions (a), (b) and (d) are proven, then the burden of proof shifts to the E to prove that there is no money due to be paid to the MC. The E is not entitled to make a bare assertion, and the failure of the E to substantiate its assertion that no money is due with documentary evidence would lead to Court to invoke an adverse inference against the E.
The decision of the learned Wong Kian Kheong J. is definitely a welcome addition to the plethora of CIPAA 2012 cases, as it clarifies in no uncertain terms that the E bears the burden to establish, by reference to contemporaneous documentary evidence, that no money is due and payable to the MC. This would be especially welcome in situations when the E and the MC share a close relationship, in order to fortify the application of s30 CIPAA 2012.
Lessons from the case:
- An E receiving a s30 CIPAA 2012 application must substantiate its assertion of “no money due” with contemporaneous documents, otherwise it may be expected to honour the direct payment request.
- A SC seeking a direct payment under s30 CIPAA 2012 can demand for such contemporaneous documents to be satisfied that there is indeed no money due and payable.