FOONG LI TRADING SDN BHD v OCR PROPERTIES (KUANTAN) SDN BHD

Case Significance

Instructive on the mandatory notice requirement under section 30(2) of the Construction Industry Payment and Adjudication Act 2012 and the evidential burden on a principal resisting a sub-contractor's direct-payment claim after the main contractor's default.

This High Court decision at Shah Alam concerns an application under section 30 of the Construction Industry Payment and Adjudication Act 2012 for an order that an adjudicated amount be paid directly by the principal. The plaintiff, Foong Li Trading Sdn Bhd, was a sub-contractor engaged by a main contractor, Kencana Amanjaya Sdn Bhd, on a project for which the defendant, OCR Properties (Kuantan) Sdn Bhd, was the principal. The plaintiff carried out its works but was not fully paid; after the main contractor was wound up, the plaintiff obtained leave under section 471(2) of the Companies Act 2016 to pursue adjudication against it and secured an adjudication decision requiring payment of an outstanding sum together with interest and the costs of the adjudication. The decision remaining unpaid, the plaintiff served a notice on the defendant, as principal, requesting direct payment under section 30, and the defendant replied that no monies were due or payable to the main contractor, relying on settlement agreements it had entered into with the main contractor. The court, per Shahriza Zalina binti Abdul Shukor JC, allowed the application. Drawing on the Court of Appeal in Kinu Sdn Bhd, it held that section 30(2), by its use of 'shall', imposes a mandatory requirement that upon receiving the sub-contractor's written request the principal must serve a written notice on the main contractor against whom the adjudication decision was obtained, requiring proof of payment, and that a failure to do so is a factor in determining whether money is due or payable from the principal to the main contractor and may even justify an adverse inference under section 114(g) of the Evidence Act 1950. Having failed to serve such a notice, the defendant had to satisfy the court, on independent, credible and cogent evidence, that no amount was due or payable to the main contractor, and the court found it had failed to discharge that evidential burden. The application was accordingly allowed with costs of RM7,500. The judgment is instructive on the mandatory notice requirement and the evidential burden on a principal resisting a section 30 direct-payment claim.