Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] 8 CLJ 728
It is a common scene in the construction industry that the contract provides that the contractor’s rights to payment is subjected to the issuance of interim payment certificate and/or valuation of progress claim / interim payment claim.
Such provision can also be found in the standard building contract such as PAM Contract, PWD Contract and CIDB Contract.
As such, when Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) first came into effect in 2014, one of the defence frequently raised by the Non-Payment Party / Respondent against the Unpaid Party / Claim’s claim of progress claim was that the payment is premature as the interim payment certificate was not issued yet.
On 08/06/2015, the High Court of Sabah & Sarawak clarified and confirmed that a CIPAA Claim can be based on uncertified progress / interim payment claim even if the contract provides that payment is subjected to the certification of progress claim / interim payment claim.
Background Facts
The background facts of this matter is as follow:-
- Bina Puri Construction Sdn Bhd (“Main Contractor“) is the main contractor of a project known as “The Proposed Tourist Recreational and Commercial Development (Phase II-KK Times Square)“.
- Hing Nyit Enterprise Sdn Bhd (“Sub-Contractor“) was awarded the sub-contract works known as “RC Structural Work to Shopping Mall, Shops and Elevated Car Park, part of Basement Level and Balance of Basement Work” for the contract price of RM60,411,702.78.
- Subsequently, a payment dispute arose between the parties and the Sub-Contractor commenced CIPAA claim against the Main Contractor for the outstanding interim payment claim of RM3,949,443.40.
- The Adjudicator found in favour of the Subcontractor.
- In response, the Main Contractor sought to set aside the Adjudicator’s Adjudication Decision pursuant to Section 15 of CIPAA.
- One of the grounds the Main Contractor raised was that the Conditions of Contract provides for a process of certification of interim payment claim. As the Subcontractor’s claim of outstanding interim payment claim is uncertified, the CIPAA Payment claim issued is premature.
Decision of High Court
The High Court rejected the Main Contractor’s argument and held that the lack of certification of any progress/interim claim is NOT a bar to CIPAA Proceeding.
The High Court reasoned that there was no requirement of certification in the CIPAA Act. Further, Section 25(n) and (m) of CIPAA 2012 expressly empowers the Adjudicator to decide and declare on any matter notwithstanding that no certificate has been issued. As such, even if the contract stipulates that payment is subjected to the issuance of certified interim or progress claim, the absence of such certification will not preclude the Unpaid Party/Claimant from the CIPAA proceeding.
[19] This argument of counsel for applicant, for obvious reasons, must be considered with utmost care and circumspection. This argument, if accepted, would mean that in cases when the certifying authority of a progress or interim claim is the main contractor, a sub-contractor may not be able avail the adjudication process. All that the main contractor has to do to avoid the CIPAA regime altogether and defeat the intention of Parliament is to refuse certification of progress or interim claims. In my respectful opinion, lack of certification of progress or interim claim is not a bar to the adjudication process. Section 5 does not require the existence of certified progress or interim claim before a payment claim can be issued. In fact, s. 25(n) of CIPAA states that the adjudicator has power to “decide or declare on any matter notwithstanding no certificate has been issued in respect of the matter”. Under s. 25(m), the adjudicator is also empowered to “review and revise any certificate issued or to be issued”. This simply means, even if the contractual agreement between the parties provides for issuance of a certified interim or progress claim, the absence of certification cannot deprive the unpaid party from availing the adjudication process. Furthermore, in the instant case, the adjudicator, in para. 80 of his decision, invoked his power to “review and revise” under s. 25(m) to assess the work done by the respondent. He is entitled to do so although no certificate was issued by the applicant as s. 25(m) covers cases where a certificate “is to be issued” or in other words covers cases where no certificate was actually issued.
– The Honourable Ravinthran Paramaguru J (as his Lordship then was)
Effect of the Decision
With the decision, the Non-Paying Party / Respondent (usually the developer / main contractor) can no longer withhold the certification of progress claim or interim payment claim to justify its non-payment in CIPAA Adjudication Proceeding.
Having said the above, the non-certification by the Non-Paying Party / Respondent will still have significant practical impact in practice as the Claimant will find it more difficult in proving its claim.