CIPAA 2012: Direct Payment under Section 30 Following Liquidation
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CIPAA 2012: Direct Payment under Section 30 Following Liquidation
Section 30 of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012“) provides an unpaid party with a statutory mechanism to seek direct payment of an adjudicated amount from the principal (employer) of the party against whom the adjudication decision was made (main contractor). But is the statutory mechanism still applicable when the main contractor is wound up?
The Court of Appeal in its earlier decision of CT Indah Construction Sdn Bhd v. BHL Gemilang Sdn Bhd [2020] 1 CLJ 75 (“CT Indah“) reconised an independent statutory obligation upon the principal to make direct payment notwithstanding the winding up of the main contractor [read our update HERE].
Subsequently, in JDI Builtech (M) Sdn Bhd v Danga Jed Development Sdn Bhd [2024] 5 CLJ 613 (“JDI Builtech“), a case principally concerned with the overarching requirement of “money due or payable” under section 30(5) [read our update HERE], the Court of Appeal recognised CT Indah’s characterisation of section 30 as an independent statutory remedy but also expressed reservations over that remedy where the main contractor was already in liquidation:
“[43] It is no comfort to say to the principal that it can always deduct the amount paid to the subcontractor under the direct payment order that the principal can always set off the amount from current or future certificate of payment or that if the main contractor had been terminated, to then recover the sum paid as a debt from its main contractor. It is even more discomforting to the principal when the main contractor is in liquidation and realising that even that is not effective to make the main contractor pay, to now say that the principal must pay first.“
[Emphasis added]
Against these earlier decisions, could the independent statutory obligation under section 30 operate notwithstanding the pari passu and undue preference rules governing companies in liquidation? And where did this leave the earlier decision in CT Indah?
These issues again arose before the Court of Appeal in KTCC Mall Sdn Bhd v TCS Construction Sdn Bhd & Another Appeal [2026] 8 CLJ 266 (“KTCC Mall“).
Brief Facts
The brief facts of the case are as follows:
- KTCC Mall Sdn Bhd (“KTCC” / “Principal“) appointed MPM Project Management Sdn Bhd as the main contractor (“MPM” / “Main Contractor“) for a project. MPM subseuqnetly appointed TCS Construction Sdn Bhd as its subcontractor (“TCS” / “Subcontractor“).
- A Certificate of Practical Completion was issued on 23.01.2020. The quantity surveyor subsequently assessed the final contract sum at RM224,053,767.00, which KTCC maintained had been fully paid to MPM.
- MPM was wound up on 28.02.2022.
- Thereafter, TCS obtained an adjudication decision dated 13.09.2022 against MPM for RM6,141,557.77.
- On 21.09.2022, TCS issued a written request to KTCC pursuant to section 30(1) of CIPAA 2012 seeking direct payment of the adjudicated sum, interest and adjudication costs.
- KTCC denied any obligation to make direct direct payment. Amongst others, KTCC contended that MPM had been wound up and that there were no monies due or payable by KTCC to MPM.
- TCS commenced proceedings against KTCC for direct payment under section 30 of CIPAA 2012. KTCC separately sought declarations that TCS was not entitled to direct payment.
- The High Court decided both proceedings in favour of TCS, KTCC appealed.
Issues before the Court of Appeal
The central issues before the Court of Appeal were:
- Whether section 30 of CIPAA 2012 may be invoked where the main contractor has already been wound up;
- What is the effect of the KTCC decision on the earlier Court of Appeal decision in CT Indah; and
- Whether the High Court was bound by an earlier Court of Appeal finding that there were no monies due or payable by KTCC to MPM in respect of the same project.
Section 30 and the insolvency regimes
Separately, from its finding that there were no monies due or payable by KTCC to MPM, the Court of Appeal also considered whether section 30 could operate once MPM had been wound up.
The Court held that section 30 could not operate so as to override the statutory provisions governing undue preference under sections 527 and 528 of the Companies Act 2016 (“CA 2016“). Although section 30 creates an independent statutory obligation upon the principal, that obligation could not be used to circumvent the statutory insolvency regime. In this regard, the Court observed:
“[44] The remedy of recovery by the principal/employer from the main contractors, ie. MPM pursuant to s. 30(4) of the CIPAA will in our view not be available to the employer, in our case being the appellant herein, when MPM is already wound up as the appellant would have to stand in line with the other creditors of MPM to recover any monies paid in this case from MPM. The appellant should not be able to circumvent the law on ‘undue preference’ under s. 528 of the Companies Act 2016 and will as such be put to a real disadvantage in any effort to recover from MPM the monies so paid.
…
[51] This, whilst we agree with the statement that the Court of Appeal in CT Indah Construction Sdn Bhd (supra) which held that the obligation of the principal to pay the subcontractor is an independent statutory remedy specially provided under the CIPAA, that in our considered view does not mean that the obligation under s. 30 of the CIPAA can over-ride, circumvent or bypass the provisions of ss. 528 and/or of the Companies Act 2016.”
The Court further considered the relationship between CIPAA 2012 and the CA 2016. Applying the principle generalia specialibus non derogant, the Court held that CIPAA 2012 is the general law governing payment disputes in the construction industry, whereas the provisions of the CA 2016 governing winding up are the specific laws applicable to companies which have been wound up. In this regard, the Court observed:
“[55] In accordance with and applying the generalia specialibus non derogant maxim, we hold that the aforesaid two provisions of written law (one being general, ie. CIPAA, and the other specific being the insolvency laws in the Companies Act 2016), the special or specific provision will govern and thus exclude the operation of the general provision and will prevail as stated by Gopal Sri Ram JCA (as His Lordship then was) in Luggage Distributors (M) Sdn Bhd v. Tan Hor Teng & Anor [1995] 2 CLJ 713…”
Finally, the Court held that section 30 neither improves the priority of the adjudicated debt nor displaces the pari passu principle governing the distribution of the assets of a wound-up company. The Court observed that section 30 does not clearly and unambiguously accord an unpaid party priority over the other creditors of the company:
“[65] We also wish to point out that a reading of s. 30 of the CIPAA does not expressly state that it will or can override any other legal obligations imposed under any other law and in particular under the provisions of the law pertaining to ‘undue preference’ under the winding-up provisions in the Companies Act 2016.
[66] As such as there are no clear and unambiguous statutory provisions in s.30 of the CIPAA which allow for the dislodging of the pari passu principal. We accordingly hold that the law pertaining to ‘undue preference’ under winding up in the Companies Act 2016 is not displaced in the circumstances before us.”
EFFECT OF KTCC MALL ON CT INDAH
In the main judgment, the Court first distinguished CT Indah on the basis that the issue of whether there was money due or payable by the principal had not arisen in that case. In KTCC Mall, by contrast, the Court had found that there were no monies due or payable by the principle, KTCC , to the main contractor, MPM:
“[42] Be that as it may, we find that in CT Indah Construction Sdn Bhd (supra) the issue of there being no money due or payable by the appellant therein was never raised. Accordingly, the appellant here submits and we agree that this is quite different from the case before us as there is no money due and payable by the appellant to MPM.”
The main judment nevertheless went on to consider the effect of MPM’s liquidation and held that the independent statutory obligation under section 30 could not override or circumvent the insolvency regime (see above).
There was also two supporting judgments, both of which identified the tension between CT Indah and JDI Builtech and revisited the decision in CT Indah. The first supporting judgment considered CT Indah to have been decided per incuriam, whilst the second considered that its reasoning “appears per incuriam“. In particular, the first supporting judgment observed:
“[80] There is presently a conflict of views highlighted in the main grounds of judgment here between the Malaysian cases of CT Indah Construction Sdn Bhd v. BHL Gemilang Sdn Bhd [2020] 1 CLJ 75; [2019] MLJU 1215 and JDI Builtech (M) Sdn Bhd v Danga Jed Development Malaysia Sdn Bhd [2024] 5 CLJ 613; [2024] 4 MLJ 29.
“[81] Based on the analysis and justification in the main grounds of judgment here, I venture to say that the decision of CT Indah Construction Sdn Bhd v. BHL Gemilang Sdn Bhd (supra) is per incuriam. That decision is based on cases pertaining to contractual direct payment clauses from employer to sub-contractor from various foreign jurisdictions…”
Having found CT Indah to have been decided per incuriam, the supporting judgment further held that it would overreach the statutory intent of CIPAA 2012 to treat an unpaid party exercising its right to direct payment under section 30 as a secured creditor. The Court accordingly held that it was not bound by it, and that legislative provision would be necessary if an unpaid party were to be treated as a secured creditor in such circumstances:
“[82] Thus and no doubt the objects of the CIPAA include regular recovery of construction payment, it nonetheless overreaches the statutory intent of the CIPAA if the unpaid party is treated as a secured creditor (not subject to pari passu treatment) amongst other creditors of the non-paying party when direct payment provision by the principle is exercised under s. 30 of the CIPAA when the non-paying party has been wound-up.
[83] This court, with respect, is hence accordingly not bound by it. It will be necessary for legislative provision if the unpaid party is to be treated as a secured creditor in such circumstances.”
COURT OF APPEAL’S EARLIER DECISION ON THE SAME PROJECT – BINDING ON THE HIGH COURT?
Peculiar in this case, the Court of Appeal had previously considered a section 30 claim against KTCC in Lua Yik Hor t/a Better One Marketing v KTCC Mall Sdn Bhd (“Better One“), which involved another subcontractor of MPM in respect of the same project.
In Better One, the Court of Appeal had found that there were no monies due or payable to KTCC to MPM. Although the High Court in KTCC Mall had been informed of the decision, it nevertheless allowed TCS’s claim under section 30.
The Court of Appeal held that the High Court was bound by the decision in Better One under the doctrine of stare decisis, as the facts appeared to be similar. Separately, having considered the contemporaneous documentary evidence before it, the Court reached the same finding that there were no monies due to payable by KTCC to MPM:
“[33] Apart from our own decision that there are no sums due and payable by the appellant to MPM based on our said findings, we have on our decision on the doctrine of stare decisis, and after considering Better One case, Court of Appeal find that the decision therein would bind the HCJ as the facts therein appear, in our view, to be similar to the case before us and as such the doctrine of stare decisis must come into play…”
Key Takeaways
The key takeaways from the Court of Appeal’s decision are as follows:-
- The section 30 direct payment mechanism was not available as the main contractor in this case had already been wound up before direct payment was sought. Although section 30 creates an independent statutory obligation upon the principal, it does not confer secured creditor status or priority upon the unpaid party. The pari passu and undue preference rules under CA 2016 prevail.
- CT Indah must now be approached with considerable caution. The main judgment distinguished CT Indah and held that the independent statutory obligation under section 30 could not override the insolvency regime. Of the two supporting judgments, one considered CT Indah to have been decided per incuriam, whilst the other considered that its reasoning “appears per incuriam”.
- An earlier Court of Appeal decision concerning the same project was binding upon the High Court in a subsequent section 30 application where the facts were materially similar. Applying the doctrine of stare decisis, the High Court was bound by the earlier Court of Appeal finding that there were no monies due or payable by the principal to the main contractor.
ABOUT THE AUTHOR
ANDREW HENG YENG HOE
- Senior Partner
- LL.B University of London
- LL.M University of Northumbria
- andrew@zainmegatmurad.com
- +6016 – 222 8412
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