IEC POWER ENGINEERING SDN BHD v DANGA JED DEVELOPMENT MALAYSIA SDN BHD (dahulu dikenali sebagai Greenland Danga Bay Sdn Bhd)

Case Significance

Confirms that direct payment under section 30 of CIPAA 2012 requires the applicant to establish the section 30(5) threshold of an amount 'due or payable' by the principal to the main contractor, and that an adjudication decision does not bind the principal or entitle a subcontractor to priority over the main contractor's other creditors.

This High Court decision in the Construction Court at Johor Bahru concerns an application for direct payment under section 30 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012). The plaintiff, a subcontractor, had obtained an adjudication decision against the main contractor, and sought to recover the adjudicated sum directly from the defendant, the project's principal or employer, on the footing that money owing from the main contractor could be paid to the plaintiff out of what the principal owed the main contractor. The central issue was the threshold requirement in section 30(5), namely that there be an amount 'due or payable' by the principal to the main contractor against which the direct-payment mechanism can operate. The Court held that the plaintiff had failed to establish any financial basis of entitlement between the principal and the main contractor: there was no payment certificate, no interim certification and no final account, and the main contract had in any event been terminated, so there was no amount 'due or payable' by the principal to the main contractor at the time the plaintiff issued its notice. A bona fide dispute raised by the principal did not need to be resolved, because the plaintiff's failure to cross the section 30(5) threshold was itself sufficient to defeat the application; the initial burden lay on the applicant to establish that threshold. The Court also observed that an adjudication decision binds only the parties to the adjudication and does not bind the principal, and that, the main contractor having been wound up, the plaintiff could not use section 30 to leapfrog ahead of the main contractor's other unsecured creditors. Applying JDI Builtech, Kinu Sdn Bhd and CT Indah, the Court dismissed the originating summons. The decision underscores that the direct-payment remedy is a conditional one, dependent on there being an established sum owing up the contractual chain, and that it cannot be used to convert an adjudication award against an insolvent main contractor into a preferential claim against the employer.