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  • Writer's pictureKELVIN NG CHUN YEE

Direct Payment against the Principal under CIPAA 2012 (Part 3)

Can a principal apply to set off any monies due or payable to the non-paying party when faced with a request for direct payment under section 30 of CIPAA?


This issue was also raised and considered in HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another summons [2020] MLJU 717, a case in which we have considered in our earlier PART 2 of our article on Direct payment.


We will be comparing this case with 3 others:

  1. LTK Façade Specialist Sdn Bhd v Sri Mutiara Development Sdn Bhd and other cases [2021] MLJU 1185;

  2. The latest decision in Zeta Letrik Sdn Bhd v JAKS Island Circle Sdn Bhd [2022] MLJU 392; and

  3. Glocal Tech Engineering Sdn Bhd v Panzana Enterprise Sdn Bhd [2021] MLJU 474



A. HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another summons [2020] MLJU 717


To recap: in HSL Ground Engineering, HSL was appointed by Civil Tech Sdn Bhd (“CT”) to carry out bore piling works for the SUKE Expressway Project. There were many layers of parties from the ultimate owner down to HSL. Suffice to say, HSL was awarded the works by CT. CT in turn was awarded his works by Civil Tech Resources Sdn Bhd (“CT Resources”). The subcontract between CT and HSL was mutually terminated. However, there were outstanding unpaid works due to HSL from CT arising from both the subcontract and a separate rental agreement between them.


HSL obtained 2 adjudication decisions in their favour against CT, one under the subcontract and rental agreement respectively. CT refused to pay HSL albeit the adjudication decisions.

Thus, HSL served on CT Resources the notices under 30(1) of CIPAA requesting payment directly from the principal. CT Resources did not pay HSL. And so HSL bought the two actions against CT Resources.


CT Resources did not issue any notices to CT under subsection 2 of CIPAA. However, CT Resources contends that there is no money due or payable by them to CT.

They produced a final account showing:

  1. There were 8 progress certificates, cumulating to RM RM5,440,566.69;

  2. They had previously paid CT a cumulative amount of RM RM5,046,507.34 leaving a balance of RM394,059.35

  3. However, there are back charges from debit notes cumulating to RM4,004,162.69. As a result, it was CT who owed CT Resources the sum of RM3,610,103.34.


The learned judge took note of the final account that CT Resources had produced. It was held:

  1. The final account exhibited by CT Resources was “unilaterally produced” by CT Resources.

  2. There was no acceptance or endorsement by CT. This contradicts a term in the contract between CT Resources and CT which expressly states: “7. Final balance payment due shall be released to the Sub-Contractor upon signing the Statement of Final account by both parties.”

  3. They comprised of the master summary, sub summaries and several payment vouchers as well as bank balance statements relating to the payment of the progress certificates only.

  4. The crucial supporting documents such as CT’s progress claims or invoices that would have demonstrated its position on the final accounts as well as all the CT Resources’ relevant alleged back charge debit notes were not produced.

  5. the payment vouchers adduced by CT appeared suspicious as some of them do not contain any acknowledgment of receipt by CT.

  6. the bank statements produced are not on the letterhead of the bank concerned or with the stamp and signature of the bank on every page of the printed statement as asserted by the HSL.

As a result, the learned judge found and held that CT’s statement of final accounts is “unworthy and unreliable” and allowed HSL’s application for direct payment against CT.




B. LTK Façade Specialist Sdn Bhd v Sri Mutiara Development Sdn Bhd and other cases [2021] MLJU 1185


In this case, Axisjaya was appointed by Seri Mutiara Development Sdn Bhd (“Seri Mutiara”) as the main contractor for a condominium project in Cyberjaya. Axisjaya in turn appointed LTK Façade Specialist Sdn Bhd (“LTK”) to supply and install the aluminum, glazing and louvre screens for the said project.


LTK obtained an adjudication decision against Axisjaya. They then filed an application for direct payment against inter alia, Seri Mutiara.


Seri Mutiara contends that there were no monies due or payable to Axisjaya. Part of the reason for this is as follows:

  1. Seri Mutiara claims that there is LAD of RM 2,392 million against Axisjaya. Seri Mutiara produced a letter dated 2.5.2019 wherein Axisjaya purportedly agreed to the LAD claim. It was signed by Axisjaya’s managing director.

  2. Seri Mutiara produced a letter dated 30.9.2019 stating that it had made “full payment” up to PC 19 and had released the retention sum to Axisjaya.


Seri Mutiara only produced interim certificates 19 and 20 in its affidavit.


The learned judge held that Seri Mutiara had failed to discharge their burden of showing that no money was due or payable to Axisjaya.


  1. On the LAD claim, the learned judge held:

    1. if it was genuine, Seri Mutiara would have filed a suit against Axisjaya to recover the LAD.

    2. Since Axisjaya already agreed to LAD, there was no reason for Seri Mutiara to make subsequent payment as contended in its letter.

  2. The learned judge noted that Seri Mutiara did not have exhibited the following documents:

    1. The PAM Contracts which have been executed between Axisjaya and Seri Mutiara (Seri Mutiara only exhibited the Letter of Award).

    2. All progress claims submitted by Axisjaya to Seri Mutiara.

    3. Proof that Axisjaya’s works have been certified by the architect, as found in the clause under the Letter of Award.

    4. All the interim payment certificates issued by Seri Mutiara.

    5. The final claim by Axis to Seri Mutiara.

    6. Documentary evidence of all payments by Seri Mutiara to Axisjaya (cheques, bank statements, invoices, receipts, etc).

  3. The learned judge held that the suppression of the above material documents attracts an adverse inference under s 114(g) of the Evidence Act 1950 ("EA") against Seri Mutiara.


“In view of the evidential burden on Z regarding the 3rd Condition, if Z suppresses relevant documents with respect to the 3rd Condition in X’s suit against Z under s 30 CIPAA, the court may exercise its discretion to draw an adverse inference under s 114(g) EA against Z - please see the judgment in the Supreme Court delivered by Mohd. Azmi SCJ in Munusamy v Public Prosecutor [1987] 1 MLJ 492, at 494. I reproduce below s 114(g) EA -


“Court may presume existence of certain fact

114. The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case.

ILLUSTRATIONS

The court may presume -

(g) that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it;”

(emphasis added).

An adverse inference under s 114(g) EA was drawn by Lim Chong Fong J against Z in HSL Ground Engineering, at [37].

(emphasis added).




C. Zeta Letrik Sdn Bhd v JAKS Island Circle Sdn Bhd [2022] MLJU 392


In Zeta Lektrik, Zeta obtained an Adjudication Decision against the main contractor: JAKS Sdn Bhd. Zeta then filed an application for direct payment against the principal: JAKS Island Circle. Like in LTK Facade above, the principal here contends that there is no money due and owing to the main contractor on grounds, among others, that the principal says that there is about RM 108 million in LAD against the main contractor. The principal relied on a letter dated 2.9.2021 to the main contractor to support this contention which states:


… the estimated LAD sum is about RM108 million plus as at 2nd Sep. 2021, wherein we will offset the said total LAD sum from your Interim Certificates which are payments due and payable to you (if any). …


However, the very same letter dated 2.9.2021 contained a statement stating that the principal had granted the main contractor extension of time up to 30.11.2021. Based on this, the learned judge held that no LAD was payable by the main contractor as the completion date had been extended to 30.11.2021.




D. Glocal Tech Engineering Sdn Bhd v Panzana Enterprise Sdn Bhd [2021] MLJU 474


In Glocal Tech, Panzana contends that there is no money due or payable to the non-paying party, MKP. In this regard:

  1. Panzana produced the certificate of non-completion, notice of default and the notice of termination of the subcontract between Panzana and MKP.

  2. Panzana also contends that there is an ongoing civil suit between MKP and Panzana where MKP is claiming for RM 91million for works done and retention sum, whereas Panzana counterclaims for RM 147 million for LAD, back charges and additional cost for completing MKP’s portion of works.

The learned high court judge opined that Panzana has discharged the


evidential burden to prove, that there is no money due or payable them to MKP as of the date of the notice from Glocal since no decision has been made by the Kuala Lumpur High Court on MKP’s claims in the civil suit.




E. Summary


From the above cases, it appears that the answer to the question of the title of this article appears to be in the affirmative: yes, the principal can apply the defence of set-off. However, the success of that defence will depend on whether the principal has discharged the evidentiary burden of proofing the set-off.


The evidentiary burden is on the principal to prove that there is no money due or payable to the non-paying party at the time of receipt of the notice from the unpaid party. - Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020] MLJU 311


When it comes to satisfying this evidential burden:

  1. The principal should make full disclosure of all relevant documents and facts. Otherwise, it may attract adverse inference;

  2. The documents must be consistent with one another; and

  3. If the set-off results in a positive amount owing to the principal from the non-paying party, the courts will look at the conduct of the principal and how he has acted or otherwise: -e.g.: commencing arbitration or civil suit, or calling on security such as performance bond.

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