The introduction of Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) allows an aggrieved contractor or consultant (known as Unpaid Party) to recover outstanding payment speedily against the Employer / Contractor (known as Non-Paying Party).
In response to a CIPAA claim, the Respondent / Non-Paying Party may raise counterclaims / deduction / set-off to defend against the Claimant’s / Unpaid Party’s claim.
What happen if the Respondent/ Non-Paying Party /Employer has a greater counterclaims / deductions / set-off against the Claimant / Unpaid Party? Can the Respondent / Non-Paying Party be allowed a positive claim against the Claimant / Unpaid Party in the event that the counterclaims/ deductions / set-off is successfully proven?
This issue was recently addressed by the High Court of Kuala Lumpur in the following case of Tenaga Poly Sdn Bhd v Crest Builder Sdn Bhd (Originating Summons No. WA-24C-44-06/2016).
Tenaga Poly Sdn Bhd v Crest Builder Sdn Bhd (Originating Summons No. WA-24C-44-06/2016)
In this case, the High Court made a declaration that the Non-Paying Party / Respondent can only ‘zerorize’ the Unpaid Party’s / Claimant’s claims but NOT to the extent where the Unpaid Party would be made to pay the Non-Paying Party.
The High Court further declared that the Non-Paying Party may only raise LAD claim as a defence to the Unpaid Party’s claim and not a stand-alone counterclaim.
Significance of the High Court Decision
Following the High Court’s declaration, a Respondent / Non-Paying Party / Employer could not be awarded with a positive claim against the Claimant / Unpaid Party even if the Adjudicator finds in favour of the Respondent / Non-Paying Party / Employer.
Any set-off, deduction or counterclaim introduced by the Non-Paying Party (such as LAD, rectification costs advance payment) can only operate to ‘zerorise’ the Unpaid Party’s claim, i.e. to bring the claims to RM0.00.
Effectively, the Unpaid Party would NOT be made to pay the Non-Paying Party in the CIPAA Proceeding even if the set-off, deduction or counterclaim is greater than the CIPAA Payment Claim amount which work greatly in favour of the Claimant / Unpaid Party.
The Respondent / Non-Paying Party / Employer will have to initiate a separate action by way of arbitration / court proceeding to recover any set-off, deduction or counterclaim which exceeds the Claimant’s / Unpaid Party’s claims.